Earned Income Tax Credit in Korea

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An Introductory Guide

-Jae-Jin Kim

9 788973 569557 9 3 3 3 0

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Pay in Korea

An Introductory Guide

-Joon-Sung Park

(Professor, Sungshin Women's University and Chairman, Minimum Wage Council)

Eui Kyoung Park

(Senior Researcher, Korea Labor Institute)

Equal Employment Policies in Korea

An Introductory Guide

-Hee-Kyung Kim

(Senior Consultant, Korea Labor Foundation)

Myung-sook Jun

(Professor, Chonnam National University)

Earned Income Tax Credit in Korea

An Introductory Guide

-Jae-Jin Kim

(Korea Institute of Public Finance)

Earned Income Tax Credit in Korea

An Introductory Guide

-Jae-Jin Kim

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Jae-Jin Kim ⓒ2013

Korea Labor Institute

All rights reserved. No part of this book may be reproduced in any form without permission in writing from the publisher. KOREA LABOR INSTITUTE

30, Eunhaeng-ro, Yeongdeungpo-gu, Seoul, 150-740, Korea

http://www.kli.re.kr

ISBN : 978-89-7356-955-7 93330

Note: The author welcomes any use of this material, provided the

source is acknowledged. Nothing written here is to be construed as necessarily reflecting the views of the Korea Labor Institute.

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1. Earned Income Tax Credit Introduction Process ··· 1

A. Background of Earned Income Tax Credit Introduction ··· 1

B. Earned Income Tax Credit Progress ··· 2

2. History of the EITC ··· 9

A. 2009-2011 ··· 9

B. 2012 (Current) ··· 11

3. EITC Program Statistics ··· 16

A. 2009 ··· 16

B. 2010 ··· 19

C. 2011 ··· 24

D. 2012 ··· 28

4. Comparison of EITC Payment by Year ··· 32

A. Recipients and Payment ··· 32

B. Ratio of EITC Payment ··· 35

C. Reasons for Not Meeting EITC Recipient Requirements ··· 36

D. Distribution by Applicant’s Region of Residence ··· 38

E. Distribution of Recipients by Structure of Household and Home Ownership ··· 39

F. Distribution by Age ··· 40

G. Distribution by Employment Type ··· 41

H. Distribution by Industry Type ··· 42

I. Distribution by Number of Dependent Children ··· 43

J. Distribution by Frequency of Receiving EITC ··· 44

5. Future Plans ··· 45

References ··· 47

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Table 1. Stage 1 (Feb. 2003–Aug. 2005) : Discussion ··· 3

Table 2. Stage 2 (Aug. 2005–Jul. 2006) : Preparation ··· 5

Table 3. 2006 Tax Laws Revising Plan at the Time of EITC Introduction ··· 7

Table 4. Stage 3 (Aug. 2006–Dec. 2008) : EITC’s Legislation, Organization Establishment, and System Building ··· 8

Table 5. Qualifications for the EITC ··· 10

Table 6. Computation of EITC ··· 10

Table 7. Qualifications for the EITC (2012) ··· 12

Table 8. Computation of EITC (2012) ··· 13

Table 9. Computation of EITC (2012) ··· 14

Table 10. Distribution of Recipients (2009) ··· 16

Table 11. EITC Payment Data by Recipient Characteristic (2009) 18 Table 12. Distribution of Recipients (2010) ··· 20

Table 13. EITC Payment Data by Characteristic (2010) ··· 22

Table 14. Distribution of Recipients (2011) ··· 24

Table 15. EITC Payment Data by Characteristic (2011) ··· 26

Table 16. Distribution of Recipients (2012) ··· 28

Table 17. Current Status of EITC Recipients, by Number of Dependent Children and Income Segment (2012) ··· 29

Table 18. EITC Payment Data by Characteristic (2012) ··· 30

Table 19. Increasing Number of EITC Recipients and Amounts (2009–2011) ··· 32

Table 20. Percentage of EITC Recipients, by Income Segment and Amount Paid (2009–2011) ··· 33

Table 21. Changes in EITC, by Year and Income Segment (2009–2011) ··· 35

Table 22. EITC Payment Ratio, by Year ··· 36

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Table 24. EITC Household Recipient Distribution, by Region

of Residence ··· 38

Table 25. Distribution by Household Structure ··· 39

Table 26. Distribution by Home Ownership ··· 39

Table 27. Distribution by Age ··· 40

Table 28. Distribution by Employment Type ··· 42

Table 29. Distribution by Industry Type ··· 43

Table 30. Distribution by Number of Dependent Children ··· 43

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Figure 1. Changes in the social safety net due to the introduction

of the EITC ··· 2

Figure 2. Changes in the value of EITC ··· 11

Figure 3. EITC amount payable according to number of dependent children (2012) ··· 14

Figure 4. EITC recipient households and percentages (2009) ··· 17

Figure 5. Distribution of EITC recipient households (2010) ··· 20

Figure 6. Distribution of EITC recipient households (2011) ··· 25

Figure 7. Value of EITC (2009–2011) ··· 34

Figure 8. Percentage of EITC recipient households by income segment (2009–2011) ··· 34

Figure 9. Ratio of reasons for unmet requirements ··· 37

Figure 10. Distribution by age ··· 41

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1 1. Earned Income Tax Credit Introduction Process

1. Earned Income Tax Credit Introduction Process

A. Background of Earned Income Tax Credit Introduction

The Earned Income Tax Credit (EITC) was introduced as a means to aid those working poor who have fallen into the gap in coverage between social insurance and the National Minimum Living Stand-ard Security System and to minimize the financial burden borne by the government. The EITC was introduced into an environment in which mid- and long-term financial stability were threatened by an aging population and low birthrate and the related reduced poten-tial for growth, as well as a deepening disparity in wealth.

Before the introduction of the EITC, South Korea’s social safety net had a dual structure, with the social insurance programs (health, pension, employment, and workers’ compensation insurance) tar-geting the general public and the National Minimum Living Stand-ard Security System ensuring the destitute a minimum standStand-ard of living. The National Minimum Living Standard Security System is intended to provide the basic necessities to impoverished people whose income falls below the minimum cost of living. With this system in place, a social safety net for those in extreme poverty has been ensured, but it has become difficult for the working poor who account for the majority of the near-poor1—a needy group that has newly emerged following the recent financial crisis—to be protect-ed by the existing social safety net. Since the social insurance pro-grams are only able to cover those who contribute insurance pre-miums, the working poor, who are poorly off and lack the capacity to compile savings, are rarely covered by them unless they manage

1 According to Article 36 of the Enforcement Decree of the National Basic Living Security Act, near-poor individuals are defined as those who do not receive National Basic Living Security but whose real income is less than 120% of the minimum cost of living.

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to pay the related premiums. The EITC is designed to target this group of people who suffer vulnerabilities under the existing social safety net composed of social insurance programs and public assis-tance such as the National Minimum Living Standard Security System. The program provides financial assistance to this group in order to keep them from slipping into destitution while also en-couraging them to strive to remain above the poverty line by providing them with an incentive to work.

Figure 1. Changes in the social safety net due to the introduction of the EITC. From http:// www.etaxkorea.net.

B. Earned Income Tax Credit Progress

Stage 1 (Feb. 2003–Aug. 2005):Discussion

After the presidential transition committee introduced the EITC in order to enhance the social safety net protecting the working poor as a major task of the nation, the government at the 56th National Agenda Administration Council, held in November 2004, arranged

Support Measures to Escape Poverty Through Work, in which it

discussed the necessity of introducing the EITC program and its role within the social security net. In January 2005, the National Tax Service established the Tax Support System Operation Divi-sion to discover and analyze the drawbacks of the current tax

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infra-3 1. Earned Income Tax Credit Introduction Process

structure, and to promote Korea’s plan to develop the current tax infrastructure in order to improve overall tax compliance in Korea. In addition, the EITC Research/Planning Group was established and a team of research specialists were convened to provide execu-tive and professional support under the umbrella of the Presidential Committee on Social Inclusion. In addition, nine meetings were held in which various factors, such as the actual operating condi-tion of EITCs in foreign countries, the feasibility of introducing the EITC in Korea, long-term funding measures, necessary administra-tive procedures, and infrastructure for the EITC’s introduction were examined. In July 2005, a policy forum on the feasibility of introducing the EITC was held. The 64th National Agenda Admin-istration Council held in August 2005 also discussed matters such as EITC introduction, the scope of its application, the time of its first introduction, and its time line.

Table 1. Stage 1 (Feb. 2003–Aug. 2005):Discussion

Date Main contents

Feb. 2003 Select EITC introduction as a major national task Nov. 2004

56th Government Administration Council

- Discussion of the necessity of introducing the EITC and its role within the social safety net

Jan. 2005 Establish Tax Support System Operation Division at the Na-tional Tax Service Jan.-Jul. 2005 EITC Research/Planning Group established and 1st through 9th meetings held Jul. 2005 Policy forum on the validity of EITC introduction

Aug. 2005

64th National Agenda Administration Council

- Scope of EITC application, the time of its first introduction and its time table discussed

Note. From EITC Explication, by National Tax Service, 2009; 40-Year Histo-ry of National Tax Service, by National Tax Service, 2006.

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Stage 2 (Aug. 2005–Jul. 2006):Preparation

The 64th National Agenda Administration Council held in August 2005 examined measures to introduce the EITC and necessary pre-paratory steps. Accordingly, the National Tax Service established the Task Force to Improve Tax Compliance in October 2005. Meanwhile, the Ministry of Finance and Economy established and operated the EITC Planning Office in December 2005 for the EITC legislation.

In preparation for EITC implementation, part of the Income Tax Law was revised, and its publicity and guidance were greatly em-phasized in order to increase public awareness. In addition, Infor-mation Strategic Planning (ISP) was implemented to explore the validity of establishing a new computer network to ensure the EITC’s smooth operation. A comprehensive analysis of the Na-tional Tax Service’s resources such as the Tax Integration System (TIS), the Tax Information Management System (TIMS), and the Home Tax Service (HTS) was also undertaken to review the com-mon application of computational resources.

Furthermore, in June 2006, the Korea Institute of Public Finance (KIPF)-sponsored policy forum Introduction of EITC Suitable for Korea discussed such topics as the difficulties of ensuring tax compliance and the necessity of human resources expansion.

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5 1. Earned Income Tax Credit Introduction Process

Table 2. Stage 2 (Aug. 2005–Jul. 2006):Preparation

Date Main contents

Aug. 2005

Title contest for EITC in Korea

- From 304 entries submitted, Earned Income Tax Subsidy decided

Oct. 2005 Established Task Force to Improve Tax Compliance at the National Tax Service Dec. 2005

Ministry of Finance and Economy established and operat-ed EITC Planning Office

Revision of Legislation to increase tax compliance Jan.-Oct. 2006 Submission of particulars of account, etc. promotion Apr.-Dec. 2006

Preparation of tax compliance computing system - Internet Strategic Planning promotion for an effective

computing system

Jun. 2006 EITC Introduction Suitable for Korea policy forum Jul. 2006

Revision of EITC title

- Earned Income Tax Subsidy → Earned Income Tax Credit

Note. From EITC Explication, by National Tax Service, 2009; 40-Year Histo-ry of National Tax Service, by National Tax Service, 2006.

Stage 3 (Aug. 2006–Dec. 2008):Legislation, Organization, and System Establishment

Reflecting opinions from the June 2006 policy forum on the Intro-duction of EITC Suitable for Korea, the Ministry of Finance and Economy submitted an EITC proposal to the National Assembly as it was approved by the Tax System Development Council. Accord-ing to the tax laws revisAccord-ing plan of August 2006, the first EITC payment would be distributed based on recipients’ 2007 income beginning in the year 2008. The payment would first be given to households whose relative tax compliance rate was higher, and would increase its application scope stage by stage.

However, the National Assembly Finance and Economy Commit-tee decided in December 2006 to postpone the application time line

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for 1 year until 2009, and proclaimed the Tax Reduction and Ex-emption Control Act in December 2006.

In December 2007, the eligibility requirements for the EITC bene-fit were relaxed, and lessened the administrative burden for appli-cants by minimizing the number of evidential documents required. However, the EITC that took effect after a 1-year grace period was quickly expanded to address the financial crisis and recession. In 2009, organizations and systems were developed to prepare for the distribution of the first EITC payments. In October 2007, the Earned Income Support Services was newly organized within the National Tax Service, and the Earned Income Tax Credit Opera-tions Division was established within the headquarter of Tax Rev-enue Services in January 2008, followed by the Regional Tax Of-fice. In September 2008, the EITC qualification audit system was established. In December 2008, an Internet system for electronic applications and a business transaction system for audit and re-funds were established.

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7 1. Earned Income Tax Credit Introduction Process

Table 3. 2006 Tax Laws Revising Plan at the Time of EITC Introduction Division Employee Self-employed Overall

imple-mentation stage 2007–2009 2010–2012 From 2013 Worker △ △ △ 〇 Worker Houseless with 2 or more children (310,000 households) 1 or more children (900,000 households) 1 or more children (900,000 households) Inclusion of households with no children (2,000,000 households) Independent operators × × △ 〇 Independent operators × × 1 or more children (400,000 households) Inclusion of households with no children (1,300,000 households) Special occupational operators × × △ 〇 Special occupational operators × × 1 or more children (200,000 households) Inclusion of households with no children (300,000 house-holds) Farmers and fishermen × × Applicability review Applicability review Applied households (against all households) 310,000 households (1.8%) 900,000 households (5.3%) 1,500,000 households (8.8%) 3,600,000 households (21.2%) Budget (against 2005 GNI) 150 billon won yearly (0.02%) 400 billion won yearly (0.05%) 1 trillion won yearly (0.12%) 2.5 trillion won yearly (0.30%) Importance Improvement on tax com-pliance of employee under tax threshold and daily workers Improvement on tax com-pliance of employee and self-employed Improvement on tax com-pliance of self-employed Improvement on tax compliance of self-employed Note. From Ministry of Strategy and Finance, 2006 Tax Laws Revising Plan

(Aug. 2006) requoted.

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Table 4. Stage 3 (Aug. 2006–Dec. 2008):EITC’s Legislation, Organization Establishment, and System Building

Date Major contents

Aug. 2006 EITC legislation pre-notification

Oct. 2006 Submission of EITC proposal to the National Assembly Dec. 2006 Parliamentary passage of EITC

- Enforcement beginning January 1st of 2008

Oct. 2007 Earned Income Support Services was newly organized in the National Tax Service

Dec. 2007

Modification of EITC eligibilities requirement

- Recipient of National Minimum Living Standard Security Benefits for more than 3 months

→ Living Allowance, Housing Allowance, or Training Allow-ance recipient

Relaxed terms of EITC payment

- If there is an objective data other than withholding receipts and payroll account that can confirm earned income, Director of the National Tax Service can determine the payment Improved EITC supporting documentation

- Minimize the number of evidential document required Jan. 2008 Earned Income Support Services was newly organized in the

National Tax Services

Jul. 2008 Earned Income Support Services newly organized in the Re-gional Council

Sep. 2008 Computerized system for EITC qualification validation, elec-tronic application, etc.

Dec. 2008

Internet system for electronic application and business transac-tion system for audit and refunds established

Relaxed terms for EITC application and raised payment amount

Note. From EITC Explication, by National Tax Service, 2009; 40-Year Histo-ry of National Tax Service, by National Tax Service, 2006.

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9 2. History of the EITC

2. History of the EITC

A. 2009–2011

To qualify for the EITC, workers must meet the following four criteria regarding total income, dependent children, home owner-ship, and asset requirements. The scope of qualification for the scheme and the amount of the refund have been expanded from that originally intended in the initial plan set out in the revised Special Tax Treatment Control Law, which was passed in the Na-tional Assembly plenary session on December 12, 2008 (see Table 5). The rules for qualification were eased from “a household with two or more children aged younger than 18” to “a household with one or more children aged younger than 18,” and from “those who do not own a house” to “those with a small house with a market value of 50 million won or below.” In addition, the annual maxi-mum refund has been revised upward from 0.8 million won to 1.2 million won. The scope of qualification and the amount of refund were maintained from 2009 when the program was first introduced up to 2011.

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Table 5. Qualifications for the EITC

Criteria Initial plan (2006) Extended reform (2008) 1) Annual gross

income

Total income of married couple is less than 17 mil-lion won.

Same. 2) Dependent

children

Household with two or more dependent children under 18 years of age.

Household with one or more dependent children aged younger than 18. 3) Home

owner-ship

No one in the household owns a house.

Homeless or owns a single small home valued at less than 50 million won.

4) Property

Aggregate value of the property owned by the full membership of a household is less than 100 million won.

Aggregate value of the property owned by the full membership of a house-hold, including a small home, is less than 100 million won.

Note. All four requirements should be met; excludes foreign workers and peo-ple who received National Basic Livelihood Security Benefits for more than 3 months, even if all four requirements are met.

Table 6. Computation of EITC

Earned Income Tax Credit Initial plan

(2006)

Extended reform (2008) Maximum allowance 0.8 million won 1.2 million won

Total payment (earned income) 17 million won Same

▪ Phase-in less than 8 million won Total Income × 10% Total Income × 15% ▪ Plateau 8–12 million won 0.8 million won 1.2 million won

▪ Phase-out 12–17 million won (17 million won – Total Income) × 16%

(17 million won – Total Income) × 24%

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11 2. History of the EITC

Figure 2. Changes in the value of EITC.

B. 2012 (Current)

Qualification

To qualify for the EITC, an individual must meet all requirements pertaining to total income, spouse and dependent children, home ownership, and assets. Among households that have earned wage and salary income or business income (limited to income generated from insurance solicitation and door-to-door sales)2 during the rel-evant taxable period, families that meet all of the above require-ments are allowed to claim the EITC. However, recipients of Na-tional Minimum Living Standard Security benefits (living, housing, and educational expenses) for at least 3 months, foreigners, and the dependent children of other residents are not eligible for the EITC.

2 Business income pursuant to Article 19 of the Income Tax Act or wage and

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Table 7. Qualifications for the EITC (2012)

Requirements Details

Spouse and dependent childrena

Individuals with a spouse and no dependent children under 18 years of age.

Individuals with a spouse and one or more dependent chil-dren aged younger than 18.

Annual gross income 

The total income of a married couple over the previous tax year should amount to less than the upper limit determined according to the number of dependent children.

Number of

de-pendent children 0 1 2 3 or more Upper limit for

total income 13 million won 17 million won 21 million won 25 million won Total income: the sum of business income (insurance solici-tation and door-to-door sales excluded), other income, inter-est, dividends or wage income, and income generated from insurance solicitation of door-to-door sales.

Home ownership

As of June 1 of the previous year, no one in the household owns a home or owns only a single small home valued at less than 60 million won.

Property value

As of June 1 of the previous year, the aggregate of the prop-erty owned by the full membership of a household is less than 100 million won.

Property includes homes, land or structures, vehicles, deposit money for a home lease, financial assets, stocks and bonds, golf club memberships, and the right to acquire real estate. Note. a Qualifying children can include adopted children, or grandchildren/

siblings who do not have parents or whose parents are unable to sup-port them. Age limits do not apply to a child classified as severely disabled. The annual total income of a qualifying child must be less than one million won. From National Tax Service, Earned Income Tax Credit Service (http://www.etic.go.kr).

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13 2. History of the EITC

Starting in 2012, eligibility for the EITC has been drastically ex-panded from couples with at least one dependent child younger than 18 to include childless households. The threshold of total in-come and the maximum EITC have also been revised upward to take into consideration increases in the minimum cost of living. The upper limit for total income and the maximum refund, howev-er, are applied discretely according to the number of children in a household, as part of efforts to encourage childbearing. (Annual earned income must be less than 13 million won with no qualifying children, 17 million won with one qualifying child, 21 million won with two qualifying children, and 25 million won with three or more qualifying children; the maximum EITC is 700,000 won with no qualifying children, 1.4 million won with one child, 1.7 million won with two qualifying children, and 2 million won with three or more qualifying children.) The upper limit on home values has also been raised, from 50 to 60 million won, and the self-employed en-gaging in insurance solicitation or door-to-door sales have become eligible.

Table 8. Computation of EITC (2012)

Division

Credit amount (10 thousand won)

No childa 1 child 2 children 3 children Maximum allowance 70 140 170 200 Based on net income 1,300 1,700 2,100 2,500 ▪ Phase-in 0–600 0–800 0–900 0–900 ▪ Plateau 600–900 800–1,200 900–1,200 900–1,200 ▪ Phase-out 900–1,300 1,200–1,700 1,200–2,100 1,200–2,500 Note. a With a spouse.

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Table 9. Computation of EITC (2012)

Person with spouse but with no child EITC 0–6 million won Total payment × 7/60 6–9 million won 0.7 million won

9–1.3 million won (1.3 million won – Total Income, etc.)×7/40 Person with 1 dependent child EITC

0–8 million won Total payment × 7/40 8–1.2 million won 1.4 million won

1.2–1.7 million won (1.7 million won – Total Income, etc.)×28/100 Person with 2 dependent children EITC

0–9 million won Total payment × 17/90 9–1.2 million won 1.7 million won

1.2–2.1 million won (2.1 million won – Total Income, etc.)×17/90 Person with 3 or more dependent children EITC

0–9 million won Total payment × 2/9 9–1.2 million won 2.0 million won

1.2–2.5 million won (2.5 million won – Total Income, etc.)×2/13 Note. Total income, etc. includes both earned income and business income

(insurance solicitor as well as door-to-door salesmen income included). There may be some differences in the amount from the calculation above because an actual EITC is paid according to the EITC calculated graph for convenience.

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15 2. History of the EITC

Application and Payment

To receive the EITC, those meeting the requirements must file a final return on their global income tax base and a claim for an EITC during the annual tax-reporting period. A claimant can apply at the tax office holding jurisdiction over his or her residence, through the EITC service website, or by telephone or the Automat-ed Response System. Within 3 months of the claim being filAutomat-ed, granting of the credit is determined through deliberation; the credit is wired or transferred to the applicant’s bank account within 1 month of the conclusion being reached.

When a claim for an EITC is filed, the head of the district tax of-fice adjudicates upon the claim, investigating applications and at-tached documents, and then determines the EITC amount within 3 months of the claim being filed (June–August). Within 30 days of the determination, the filer is notified of the allowance or disallow-ance. Following notification, the credit is provided to the eligible filer prior to the end of September.

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3. EITC Program Statistics

A. 2009

In 2009, the National Tax Service provided a total of 453.7 billion won to 590,000 households, or 81.5% of households that applied for the EITC. In 2009, EITC recipients were 5.4% of total workers’ households, and received an average payment of about 770,000 won.

Table 10. Distribution of Recipients (2009)

(Households, million won, %) Earned income All

Phase-in level (<8 million won) Plateau level (<1.2 million won) Phase-out level (<1.7 million won) n n % n % n % No. of recipient households 590,720 285,952 48.4 164,581 27.9 140,187 23.7 Amount paid 453,731 166,043 36.6 197,497 43.5 90,191 19.9 Avg. payment per

household 0.77 0.58 - 1.2 - 0.64 - Note. From National Tax Statistics Yearbook, by National Tax Service, 2010. The average amount received per household was about 580,000 won at the phase-in income level, 1,200,000 won at the plateau phase, and 640,000 won at the phase-out income level. Households that received 1.2 million won—the maximum allowance amount— numbered approximately 16 million, or about 27.9% of total recip-ient households.

A closer look at the characteristics of 2009 recipients of EITC re-veals that males accounted for 60.8%; coupled households, 77.1%; daily worker (daily, daily + regular) households, 60.3%; house-holds working in the production/construction industry, 44.7%; younger households in their 30s and 40s, 85.2%; households with

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17 3. EITC Program Statistics

two dependent children, 46.0%; non-homeowning households, 79.4%; and households with incomes that totaled 500 million to 800 million won, 17.3%. By region, 39.9% of recipients lived in the capital area, and Kyunggi-do had the highest share of recipients (20.9%) among cities and provinces, whereas Ulsan had the lowest. Of all recipients, 91.5% had two dependent children or fewer.

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Table 11. EITC Payment Data by Recipient Characteristic (2009) Characteristic

Households (N = 590,720)

Payment (million won) (total payout = 453,731) No. % Amount % Region Capital area 235,436 39.9 180,530 39.8 5 major megalopolis 128,530 21.8 99,580 21.9 8 district provinces 227,754 38.6 173,621 38.3 Gender Male 358,932 60.8 281,220 62.0 Female 231,788 39.2 172,511 38.0 Household type Coupled household 455,443 77.1 350,796 77.3 One-person household 135,277 22.9 102,935 22.7 Employment type Regular 234,769 39.7 197,776 43.6 Daily 266,816 45.2 175,545 38.7 Regular + daily 89,135 15.1 80,410 17.7 Age Under 20 209 0.0 128 0.0 Over 20 43,438 7.4 33,079 7.3 Over 30 243,427 41.2 187,401 41.3 Over 40 259,978 44.0 199,438 44.0 Over 50 40,971 6.9 31,671 7.0 Over 60 2,697 0.5 2,014 0.4 Industry type Agriculture/fishing 4,618 0.8 3,375 0.7 Mining 546 0.1 438 0.1 Manufacturing 133,058 22.5 103,049 22.7 Electricity/gas/water 264 0.0 185 0.0 Construction 131,131 22.2 101,148 22.3

Wholesale and retail 86,237 14.6 66,444 14.6 Food/lodging 42,656 7.2 29,583 6.5 Transportation/storage/ telecommunications 40,389 6.8 33,256 7.3 Finance/insurance 3,120 0.5 2,213 0.5 Real estate 19,721 3.3 15,066 3.3 Rental/business 59,184 10.0 43,442 9.6

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19 3. EITC Program Statistics

Characteristic

Households (N = 590,720)

Payment (million won) (total payout = 453,731) No. % Amount % Educational services 4,872 0.8 3,645 0.8 Healthcare services 15,076 2.6 12,029 2.7 Other 49,848 8.4 39,858 8.8 Number of dependent children 1 269,056 45.5 206,174 45.4 2 271,736 46.0 209,495 46.2 3 46,023 7.8 35,179 7.8 4 3,528 0.6 2,626 0.6 more than 5 377 0.1 257 0.1 Home ownership No 469,046 79.4 359,744 79.3

Yes, less than 50

million won 121,674 20.6 93,987 20.7 Total income*

less than 1 million won 38,899 6.6 3,071 0.7 1–2 million won 38,387 6.5 8,764 1.9 2–3 million won 37,183 6.3 13,950 3.1 3–4 million won 35,819 6.1 18,813 4.1 4–5 million won 36,256 6.1 24,603 5.4 5–8 million won 102,124 17.3 100,101 22.1 8–10 million won 78,372 13.3 94,046 20.7 10–12 million won 73,930 12.5 88,715 19.6 12–15 million won 100,939 17.1 88,432 19.5 15–17 million won 48,811 8.3 13,236 2.9 Note. * Applicant’s and his or her spouses’ annual total income. From

Nation-al Tax Statistics Yearbook, by NationNation-al Tax Service, 2010.

B. 2010

In 2010, a total of 436.9 billion won was provided to 566,000 households, or about 83.8% of households that applied for the EITC. The rest were excluded because they did not meet the re-quirements. The average payment amount was 770,000 won, the

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same as in 2009. The average amount received per household at the phase-in, plateau, and phase-out income levels also remained similar to those for 2009. The number of households that received 1.2 million won—the maximum allowance amount—was approx-imately 15.9 million, or about 28.1% of all recipient households.

Table 12. Distribution of Recipients (2010)

(Households, million won, %) Earned income Total

Phase-in (< 0.8 million won) Plateau (< 1.2 million won) Phase-out (< 1.7 million won) n n % n % n % No. of recipient households 566,080 267,647 47.3 159,107 28.1 139,326 24.6 Amount paid (million won) 436,903 156,760 35.9 190,928 43.7 89,215 20.4 Avg. amount per

household 0.77 0.58 1.2 0.64 Note. From National Tax Statistics Yearbook, by National Tax Service, 2011.

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21 3. EITC Program Statistics

A closer look at the characteristics of 2010 recipients of EITC re-veals that males accounted for 58.8%; coupled households, 76.0%, daily worker (daily, daily + regular) households, 56.4%; house-holds working in the production/construction industry, 42.0%; younger households in their 30s and 40s, 84.2%; households with two dependent children, 47.2%; non-homeowning households, 79.8%; and households whose total income was 12 million to 15 million won, 17.7%. By region, 40.6% of recipients lived in the capital area, and Kyunggi-do again had the highest (21.7%) share of recipients among cities and provinces, whereas Ulsan again had the lowest (1.8%). Of all recipients, 91.7% had 2 or fewer depend-ent children.

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Table 13. EITC Payment Data by Characteristic (2010) Characteristic

Number of households (N = 566,080)

Payment (million won) (total payout = 436,903) n % Amount % Region Capital Area 229,576 40.6 176,615 40.4 5 major megalopolis 123,227 21.8 96,187 22.0 8 district provinces 213,277 37.7 164,101 37.6 Gender Male 333,059 58.8 261,800 59.9 Female 233,021 41.2 175,103 40.1 Household type Coupled household 430,438 76.0 332,928 76.2 One-person household 135,642 24.0 103,975 23.8 Employment type Regular 228,031 40.3 191,038 43.7 Daily 247,391 43.7 166,646 38.1 (Regular + daily) 71,876 12.7 62,959 14.4 Etc.(submitted documen-tary evidence) 18,782 3.3 16,260 3.7 Age Under 20 173 0.0 90 0.0 Over 20 39,885 7.0 30,248 6.9 Over 30 222,864 39.4 172,009 39.4 Over 40 253,781 44.8 196,071 44.9 Over 50 45,667 8.1 35,643 8.2 Over 60 3,710 0.7 2,842 0.7 Industry type Agriculture/fishing 4,694 0.8 3,480 0.8 Mining 514 0.1 412 0.1 Manufacturing 121,223 21.4 93,153 21.3 Electricity/gas/water 284 0.1 213 0.0 Construction 116,445 20.6 89,723 20.5

Wholesale and retail 83,180 14.7 64,555 14.8

Food/lodging 39,712 7.0 28,240 6.5 Transportation/storage/

telecommunications 36,199 6.4 30,291 6.9 Finance/Insurance 2,984 0.5 2,142 0.5

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23 3. EITC Program Statistics

Characteristic

Number of households (N = 566,080)

Payment (million won) (total payout = 436,903) n % Amount % Real estate 29,765 5.3 23,699 5.4 Rental/business 57,624 10.2 42,401 9.7 Educational services 4,553 0.8 3,412 0.8 Healthcare services 16,174 2.9 12,540 2.9 Other 52,729 9.3 42,642 9.8 Number of dependent children 1 267,378 47.2 206,236 47.2 2 251,886 44.5 194,877 44.6 3 43,141 7.6 33,019 7.6 4 3,273 0.6 2,464 0.6 more than 5 402 0.1 307 0.1 Home ownership No 451,620 79.8 348,578 79.8 Yes

(less than 50 million won) 114,460 20.2 88,325 20.2 Total income*

less than 1 million won 35,757 6.3 2,783 0.6 1–2 million won 34,956 6.2 7,989 1.8 2–3 million won 34,641 6.1 13,035 3.0 3–4 million won 33,269 5.9 17,487 4.0 4–5 million won 33,121 5.9 22,494 5.1 5–8 million won 98,439 17.4 96,017 22.0 8–10 million won 71,847 12.7 86,216 19.7 10–12 million won 74,534 13.2 89,440 20.5 12–15 million won 100,334 17.7 88,223 20.2 15–17 million won 49,182 8.7 13,219 3.0 Note. * Applicant’s and his or her spouses’ annual total income. From

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24

C. 2011

In 2011, a total of 402.2 billion won was provided to 522,000 households, or about 83.8% of the households that applied for the EITC. The rest were excluded because they did not meet the re-quirements. The average payment amount to households was 770,000 won, the same as in 2010. The average amounts received per household at the phase-in, plateau, and phase-out income levels also remained similar to those for 2010. Households falling into the phase-in category of 800,000 won or less accounted for the greatest share, at 46.8%. The number of households that received 1.2 million won—the maximum allowance amount—was approx-imately 145,000, or about 27.9% of all recipient households.

Table 14. Distribution of Recipients (2011)

(Households, million won, %) Earned income Total

Phase-in (< 0.8 million won) Plateau (< 1.2 million won) Phase-out (< 1.7 million won) n n % n % n % No. of recipient households 522,098 243,307 46.8 147,032 27.9 131,759 25.3 Amount paid 402,003 141,190 35.1 176,438 43.8 84,375 20.9 Avg. amount per

household 0.77 0.58 1.2 0.64 Note. From National Tax Statistics Yearbook, by National Tax Service, 2011. A closer look at the characteristics of 2011 recipients of EITC re-veals that males accounted for 57.1%; coupled households, 73.8%; daily worker (daily, daily + regular) households, 55.5%; house-holds working in the production/construction industry, 40.4%; younger households in their 30s and 40s, 83.5%; households with one dependent child, 49.1%; non-homeowning households, 81.2%; and households with two dependent children or fewer, 91.7%. By

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25 3. EITC Program Statistics

region, 39.7% of recipients lived in the capital area, and Kyunggi-do again had the highest (21.3%) share of recipients among cities and provinces.

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26

Table 15. EITC Payment Data by Characteristic (2011) Characteristic

Number of households (N = 522,098)

Payment (million won) (total payout = 402,003) n % Amount % Region Capital Area 207,259 39.7 159,378 39.6 5 major megalopolis 113,049 21.7 87,672 21.8 8 district provinces 201,790 38.6 154,953 38.5 Gender Male 298,367 57.1 234,134 58.2 Female 223,731 42.9 167,869 41.8 Household type Coupled household 385,159 73.8 297,198 73.9 One-person household 136,939 26.2 104,805 26.1 Employment type Regular 211,902 40.6 177,253 44.1 Daily 221,435 42.4 148,391 36.9 (Regular + daily) 68,649 13.1 59,549 14.8 Etc.(submitted documen-tary evidence) 20,112 3.9 16,810 4.2 Age Under 20 257 0.0 131 0.0 Over 20 34,399 6.6 25,848 6.4 Over 30 197,171 37.8 152,453 37.9 Over 40 238,652 45.7 183,600 45.7 Over 50 48,047 9.2 37,264 9.3 Over 60 3,572 0.7 2,707 0.7 Industry type Agriculture/fishing 4,319 0.8 3,199 0.8 Mining 395 0.1 298 0.1 Manufacturing 108,239 20.7 82,745 20.6 Electricity/gas/water 205 0.0 155 0.0 Construction 103,082 19.7 79,286 19.7

Wholesale and retail 78,397 15.0 61,144 15.2

Food/lodging 36,364 7.0 26,176 6.5 Transportation/storage/

telecommunications 32,320 6.2 27,340 6.8 Finance/Insurance 2,890 0.6 2,044 0.5

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27 3. EITC Program Statistics

Characteristic

Number of households (N = 522,098)

Payment (million won) (total payout = 402,003) n % Amount % Real estate 24,739 4.7 18,642 4.6 Rental/business 56,108 10.7 41,016 10.2 Educational services 4,245 0.8 3,227 0.8 Healthcare services 17,102 3.3 13,176 3.3 Other 53,693 10.3 43,555 10.8 Number of dependent children 1 256,423 49.1 196,789 49.0 2 222,227 42.6 171,836 42.7 3 39,818 7.6 30,635 7.6 4 3,204 0.6 2,422 0.6 more than 5 426 0.1 321 0.1 Home ownership No 424,009 81.2 326,885 81.3 Yes

(less than 50 million won) 98,089 18.8 75,118 18.7 Total income*

less than 1 million won 33,415 6.4 2,605 0.6 1–2 million won 32,193 6.2 7,366 1.8 2–3 million won 31,725 6.1 11,934 3.0 3–4 million won 30,922 5.9 16,248 4.0 4–5 million won 29,944 5.7 20,316 5.1 5–8 million won 87,276 16.7 85,321 21.2 8–10 million won 65,071 12.5 78,088 19.4 10–12 million won 69,396 13.3 83,276 20.7 12–15 million won 95,883 18.4 84,452 21.0 15–17 million won 46,273 8.9 12,397 3.1 Note. * Applicant’s and his or her spouses’ annual total income. From

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28

D. 2012

In 2012, a total of 614 billion won was provided to 930,000 house-holds, or about 80.8% of households that applied for the EITC. The rest (19.2%) were excluded because they did not meet the require-ments. The total amount paid was an increase of 212 billion won (52.7%) from 2011.The average payment amount to households also increased, by 46,000 won, to 816,000 won. The average amount received per household was 610,000 won at the phase-in income level, 1.29 million won at the plateau income level, and 760,000 won at the phase-out income level. Households at the phase-in level accounted for the greatest share, at 45.3%.

Table 16. Distribution of Recipients (2012)

(Households, million won, %) Earned income Total

Phase-in (< 0.8 million won) Plateau (< 1.2 million won) Phase-out (< 1.7 million won) n n % n % n % No. of recipient households 752,049 340,963 45.3 171,628 22.8 239,458 31.8 Amount paid 614,021 208,707 34.0 222,196 36.2 183,117 29.8 Avg. amount per

household 0.816 0.612 1.294 0.764 Note. From National Tax Statistics Yearbook, by National Tax Service, 2012. Current data for EITC recipients by number of dependent children and income segment shows that the majority of households with zero to two dependent children are at the phase-in income level. On the other hand, the majority of households with three or more dependent children are at the phase-out income level.

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29 3. EITC Program Statistics

Table 17. Current Status of EITC Recipients, by Number of Dependent Chil-dren and Income Segment (2012)

(Households, %) Income segment No. of children 0 (N = 238,396) 1 (N = 215,750) 2 (N = 239,831) 3 or more (N = 58,072) n % n % n % n % Phase-in 125,93 0 52.8 96,510 44.7 96,890 40.4 21,633 37.3 Plateau 54,099 22.7 61,329 28.4 46,445 19.4 9,755 16.8 Phase-out 58,367 24.5 57,911 26.8 96,496 40.2 26,684 45.9 Note. From National Tax Statistics Yearbook, by National Tax Service, 2012. A closer look at the characteristics of 2012 recipients of EITC re-veals that males accounted for 56.9%; coupled households, 86.5%, daily worker (daily, daily + regular) households, 52.8%; house-holds working in the production/construction industry, 36.9%; younger households in their 30s and 40s, 63.0%; households with two dependent children, 49.1%; homeless households, 75.1%; and households with income of 5 million to 8 million won, 16.6%. By region, 39.6% of recipients lived in the capital area, Kyunggi-do again had the highest (19.9%) share of recipients among cities and provinces, and Ulsan had the lowest (1.7%).

The 2012 statistics on frequency of receipt of EITC show that 85,000 households (11.3% of 2012 EITC recipients) have been recipients for 4 consecutive years since the EITC was introduced, and 55% were new recipients in 2012.

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30

Table 18. EITC Payment Data by Characteristic (2012) Characteristic

Number of households (N = 522,098)

Payment (million won) (total payout = 402,003) n % Amount % Region Capital area 297,882 (39.6) 245,415 (40.0) 5 major megalopolis 162,000 (21.5) 132,480 (21.6) 8 district provinces 292,167 (38.8) 236,126 (38.5) Gender Male 427,746 (56.9) 350,505 (57.1) Female 324,303 (43.1) 263,516 (42.9) Household type Coupled household 650,342 (86.5) 510,926 (83.2) One-person household 101,707 (13.5) 103,095 (16.8) Employment type Regular 291,513 (38.8) 268,697 (43.8) Daily 311,450 (41.4) 209,773 (34.2) (Regular + daily) 85,434 (11.4) 80,990 (13.2)

Insurance solicitors and

door-to-door salesmen 45,453 (6.0) 37,190 (6.1) Etc. (Submitted

docu-mentary evidence) 18,199 (2.4) 17,371 (2.8) Age Under 20 130 (0.0) 102 (0.0) Over 20 33,067 (4.4) 28,612 (4.7) Over 30 202,053 (26.9) 198,308 (32.3) Over 40 271,520 (36.1) 255,987 (41.7) Over 50 151,161 (20.1) 89,975 (14.7) Over 60 94,118 (12.5) 41,037 (6.7) Industry type Agriculture/fishing 8,877 (1.2) 5,709 (0.9) Manufacturing 135,593 (18.0) 114,455 (18.6) Construction 141,952 (18.9) 113,881 (18.5)

Wholesale and retail 92,864 (12.3) 83,269 (13.6)

Services 161,088 (21.4) 120,008 (19.5)

Food/lodging 48,288 (6.4) 36,327 (5.9) Transportation/storage/

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31 3. EITC Program Statistics

Characteristic

Number of households (N = 522,098)

Payment (million won) (total payout = 402,003) n % Amount % Insurance solicitors, door-to-door salesmen 45,453 (6.0) 37,190 (6.1) Other 74,051 (9.8) 64,990 (10.6) Number of dependent children No child 238,396 (31.7) 100,957 (16.4) 1 215,750 (28.7) 195,190 (31.8) 2 239,831 (31.9) 248,449 (40.5) More than 3 58,072 (7.7) 69,425 (11.3) Household ownership No 564,674 (75.1) 476,443 (77.6) Yes

(less than 60 million won) 187,375 (24.9) 137,579 (22.4) Total income*

less than 1 million won 52,597 (7.0) 4,577 (0.7) 1–2 million won 52,011 (6.9) 12,328 (2.0) 2–3 million won 47,213 (6.3) 18,463 (3.0) 3–4 million won 45,538 (6.1) 25,024 (4.1) 4–5 million won 43,270 (5.8) 30,635 (5.0) 5–8 million won 124,502 (16.6) 123,638 (20.1) 8–10 million won 88,896 (11.8) 108,587 (17.7) 10–12 million won 94,388 (12.6) 111,572 (18.2) 12–15 million won 103,511 (13.8) 118,819 (19.4) 15–17 million won 48,412 (6.4) 35,172 (5.7) 17–25 million won 51,711 (6.9) 25,208 (4.1) Note. * Applicant’s and his or her spouses’ annual total income. From

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32

4. Comparison of EITC Payment by Year

A. Recipients and Payment

Since the EITC program’s introduction in 2008, the number of recipients has decreased every year through 2011: a total of 453.7 billion won was provided to 590,000 households in 2009, 436.9 billion won to 566,000 households in 2010, and 402 billion won to 522,000 households in 2011. The drop in the number of recipients is attributable to the requirements remaining unchanged while av-erage household income increased as a result of rising wages and an increase in the minimum cost of living.3 However, in 2012, the

number of recipients swelled by 213,000 from the previous year; accordingly, an additional 195.1 billion won was paid. This rise is attributed to the revision of the related law expanding eligibility to include insurance solicitors and door-to-door salespersons, increas-ing the maximum EITC amount up to 2 million won accordincreas-ing to the number of dependents, enabling childless households to apply for benefits, and raising the upper income limit to qualify for the program.

Table 19. Increasing Number of EITC Recipients and Amounts (2009–2011) Item N 2009 Δ N 2010 Δ N 2011 Δ N 2012 Δ No. of households 590,720 - 566,080 -24,640 522,098 -43,982 752,049 +229,951 Amount (hundred million won) 4,537 - 4,369 -168 4,020 -349 6,140 +2,120 Note. Δ = Change from previous year. From National Tax Statistics Yearbook,

by National Tax Service, each year.

3 The annual minimum cost of living for a household with four members

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33 4. Comparison of EITC Payment by Year

An examination of the distribution of recipients during the period 2009–2011 shows that households in the phase-in income range make up the largest proportion: more than 46% of recipients over-all.4

Table 20. Percentage of EITC Recipients, by Income Segment and Amount Paid (2009–2011)

(Households, million won, %) All Increase (< 8 million won) Flat (< 12 million won) Decrease (< 17 million won) Year and item n n % n % n % 2009 No. of households 590,720 285,952 48.4 164,581 27.9 140,187 23.7 Amount paid 453,731 166,043 36.6 197,497 43.5 90,191 19.9 2010 No. of households 566,080 267,647 47.3 159,107 28.1 139,326 24.6 Amount paid 436,903 156,760 35.9 190,928 43.7 89,215 20.4 2011 No. of households 522,098 243,307 46.8 147,032 27.9 131,759 25.3 Amount paid 402,003 141,190 35.1 176,438 43.8 84,375 20.9 Note. From National Tax Statistics Yearbook, by National Tax Service, each

year.

4 It is hard to compare the year 2012 with previous years because of the

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34

Figure 7. Value of EITC (2009–2011).

Figure 8. Percentage of EITC recipient households by income segment (2009– 2011).

A look at the changes in percentage of EITC recipients by income segment and amount received shows that the phase-in income segment showed a greater decrease in the amount received than other income segments.

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35 4. Comparison of EITC Payment by Year

Table 21. Changes in EITC, by Year and Income Segment (2009–2011) (Households, million won, won, %) Income segment 2009 2010 2011 House-holds Amount (million won) Per house-hold (won) House-holds Amount (million won) Per house-hold (won) House-holds Amount (million won) Per house-hold (won) Total 590,720 453,731 768,098 566,080 436,903 771,804 522,098 402,003 769,976 - - - (-4.17) (-3.71) (0.48) (-7.77) (-7.99) (-0.24) Phase-in 285,952 166,043 580,667 267,647 156,760 585,697 243,307 141,190 580,296 - - - (-6.40) (-5.59) (0.87) (-9.09) (-9.93) (-0.92) Plateau 164,581 197,497 1,199,999 159,107 190,928 1,199,997 147,032 176,438 1,199,997 - - - (-3.33) (-3.33) (0.00) (-7.59) (-7.59) (0.00) Phase-out 140,187 90,191 643,362 139,326 89,215 640,333 131,759 84,375 640,374 - - - (-0.61) (-1.08) (-0.47) (-5.43) (-5.43) (0.01)

Note. Amounts in () are year-to-year percentage increases. From National Tax Statistics Yearbook, by National Tax Service, each year.

B. Ratio of EITC Payment

The National Tax Service accepts EITC claims in May of each year and approves recipients by the end of September following the determination of whether claimants meet related requirements. Since 2009, the ratio of recipient households to applicants has re-mained around 80%, indicating that the majority of applicants do in fact receive benefits.

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36

Table 22. EITC Payment Ratio, by Year

(Households, million won, %) Category 2009 2010 2011 2012 n % n % n % n % Applicant households 723,937 676,634 666,816 930,232 Qualified households 590,720 81.6 566,080 83.7 522,098 78.3 752,049 80.8 Unqualified households 133,217 18.4 110,554 16.3 144,718 21.7 178,000 19.2 Note. From National Tax Statistics Yearbook, by National Tax Service, each

year.

C. Reasons for Not Meeting EITC Recipient Requirements

The reason for not meeting the EITC requirement changed greatly from the initial year to the third year of implementation. In 2009, 36.1% of applicants turned out to be unqualified based on the an-nual total income criteria, whereas their share greatly decreased, to 17.9%, in 2011. On the other hand, the share of applicant house-holds that turned out to be unqualified in the household ownership category almost doubled in 2011. During the period 2009–2011, households that were unqualified because they failed to meet the property-value requirement accounted for the largest share.

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37 4. Comparison of EITC Payment by Year

Table 23. Ratio of Reasons for Unmet Requirements

(1,000 Households, %) Year All Total income Depend-ent chil-dren Property Home owner-ship Other Non- workers n n % n % n % n % n % n % 2009 133 48 36.1 10 7.5 53 39.8 11 8.3 11 8.3 - -2010 112 24 21.4 3 2.7 42 37.5 20 17.9 23 20.5 - -2011 145 26 17.9 - - 64 44.1 24 16.6 24 16.6 7 4.8 Note. “Non-workers” refers to door-to-door salesmen, private educators, and

self-employed who claimed EITC even though they are not qualified. “-” means the value cannot be calculated or has no numerical value. From press release, by National Tax Service.

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38

D. Distribution by Applicant’s Region of Residence

The distribution of household recipients by applicant’s residence shows little or no change from year to year, with 40% of recipients being in the capital area. In the capital area, the highest percentage (20%) of recipients were in Kyunggi-do.

Table 24. EITC Household Recipient Distribution, by Region of Residence (1,000 households, %) Year All Capital area Major 5 megalopolises

Seoul Kyunggi Incheon Pusan Daegu Gwangju Daejun Ulsan 2009 591 (100) 80 (13.5) 124 (20.9) 32 (5.4) 42 (7.1) 33 (5.6) 24 (4.0) 20 (3.4) 10 (1.7) 2010 566 (100) 76 (13.4) 122 (21.65) 32 (5.6) 40 (7.0) 32 (5.6) 23 (4.0) 19 (3.3) 10 (1.8) 2011 522 (100) 68 (13.1) 111 (21.3) 58 (5.4) 35 (6.7) 29 (5.6) 21 (4.1) 18 (3.4) 9 (1.8) 2012 752 (100) 108 (14.3) 150 (19.9) 40 (5.4) 52 (7.0) 43 (5.8) 30 (3.9) 24 (3.2) 13 (1.7) Year 8 Provinces Kangwon Choong-book

Choong-nam Jeonbook Jeonnam Kyung-book Kyung-nam Jeju 2009 22 (3.9) 23 (3.9) 27 (4.5) 32 (5.4) 31 (5.3) 38 (6.4) 42 (7.2) 11 (1.9) 2010 22 (3.9) 21 (3.7) 25 (4.4) 29 (5.1) 28 (4.9) 36 (6.4) 42 (7.3) 11 (1.9) 2011 21 (4.0) 20 (3.8) 23 (4.5) 26 (5.1) 27 (5.2) 34 (6.5) 39 (7.5) 10 (2.1) 2012 32 (4.2) 28 (3.8) 33 (4.4) 38 (5.1) 42 (5.6) 52 (6.9) 53 (7.1) 13 (1.8)

Note. Amounts in ( ) are percentages of the total. From National Tax Service press releases; National Tax Statistics Yearbook, by National Tax Ser-vice, each year.

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39 4. Comparison of EITC Payment by Year

E. Distribution of Recipients by Structure of Household

and Home Ownership

The share of coupled-household recipients increased more than that of single-household recipients. In 2012, 75.1% of recipients were non-homeowners, an increase of 33.3% from 2011.

Table 25. Distribution by Household Structure

(1,000 households, %) Year All Coupled households Single households

a n n % n % 2009 591 455 77.0 135 23.0 2010 566 430 76.0 136 24.0 2011 522 385 73.8 137 26.2 2012 752 650 86.5 102 13.5 Note. a “Single households” indicates households with no spouse because of

divorce or separation by death. From National Tax Statistics Yearbook, by National Tax Service, each year.

Table 26. Distribution by Home Ownership

(1,000 households, %) Year All Non-homeowners

Homeowners (<60 million won) n n % n % 2009 574 455 79.3 119 20.7 2010 566 452 79.9 114 20.1 2011 522 424 81.2 98 18.8 2012 752 565 75.1 187 24.9 Note. From National Tax Service press releases; National Tax Statistics

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40

F. Distribution by Age

By age, the proportion of recipients in their 20s has gradually de-clined since the program’s inception, while that of beneficiaries in their 40s or older has increased. In particular, 2012 witnessed the number of recipients in their 60s growing by 90,000 households from 2011, to 94,000, as a result of the expansion of eligibility to single-person households of individuals age 60 or older. Because the pace of population aging is projected to accelerate in South Korea, the volume of EITC claimed by older adults is expected to continue to grow. Households headed by individuals in their 30s and 40s accounted for the majority of recipients, at between 70% and 80% through 2011. The proportion of recipients who are under 30 decreased from 7.4% in 2009 to 4.4% in 2012, whereas the pro-portion of recipients over 50 increased more than 4 times from 2009 (7.5%) to 2012 (32.6%).

Table 27. Distribution by Age

(1,000 households, %) Year All Under 30 30s 40s 50s Over 60

n n % n % n % n % n %

2009 591 44 243 41.1 260 44.0 41 7.0 3 0.5 2010 566 40 7.1 223 39.4 254 44.9 46 8.1 4 0.7 2011 522 35 6.6 197 37.7 239 45.8 48 9.2 4 0.8 2012 752 33 4.4 202 26.9 272 36.1 151 20.1 94 12.5 Note. From National Tax Statistics Yearbook, by National Tax Service, each

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41 4. Comparison of EITC Payment by Year

Figure 10. Distribution by age. From National Tax Statistics Yearbook, by National Tax Service, each year.

G. Distribution by Employment Type

The distribution of recipients by employment type indicates that the primary group of recipients are daily workers, accounting for 55% to 60% percent of beneficiaries. Meanwhile, the number of households granted the credit among insurance solicitors5 and door-to-door salespersons6 who generate business income—the class who newly gained eligibility for the program in 2012—stood at 45,000, or 6% of total recipients.

5 Individuals who enroll others in insurance plans as independent brokers and

receive allowances based on their results.

6 Individuals who engage in direct sales on behalf of door-to-door distributors

and receive allowances based on their results, in accordance with the Door-to-Door Sales, etc. Act.

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42

Table 28. Distribution by Employment Type

(1,000 households, %)

Year All Regular workers Daily Workers

a Insurance solicitors + door-to-door salesmen n n % n % n % 2009 591 235 39.8 356 60.2 - - 2010 566 228 40.3 338 59.7 - - 2011 522 212 40.6 310 59.4 - - 2012 752 292 35.2 415 55.2 45 6.0 Note. a If applicant overlapped daily worker + regular worker category, and

submitted evidential documents, he or she was included in daily work-er category. From National Tax Statistics Yearbook, by National Tax Service, each year.

H. Distribution by Industry Type

The distribution of recipients by type of business shows that work-ers in the manufacturing and construction industries made up the largest proportion of recipients, at 40% between 2009 and 2012. This is believed to be a result of the large body of daily workers— the main recipients of the EITC program—engaged in such indus-tries.

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43 4. Comparison of EITC Payment by Year

Table 29. Distribution by Industry Type

(1,000 Households, %) Year All Ag./

fishing Mfg. Constr. Whole-sale & retail Food/ lodging Transp./ StorageServices Insurance and door-to-door salesmen Other 2009 591 (100) 5 (0.8) 133 (22.5) 131 (22.2) 86 (14.6) 43 (7.3) 40 (6.8) 102 (17.3) - 51 (8.6) 2010 566 (100) 5 (0.9) 121 (21.4) 116 (20.5) 83 (14.7) 38 (6.7) 36 (6.4) 111 (19.6) - 54 (9.5) 2011 522 (100) 4 (0.8) 108 (20.7) 103 (19.7) 78 (14.9) 36 (6.9) 32 (6.1) 105 (20.1) - 54 (10.3) 2012 752 (100) 9 (1.2) 136 (18.1) 142 (18.9) 93 (12.4) 48 (6.4) 44 (5.9) 161 (21.4) 45 (6.0) 74 (9.8) Note. Ag = agriculture; Mfg. = manufacturing; Constr.= construction; Transp.

= transportation. Amounts in ( ) are percentages of the total. From Na-tional Tax Statistics Yearbook, by NaNa-tional Tax Service, each year.

I. Distribution by Number of Dependent Children

In 2009, recipients with two dependent children made up the highest percentage (46%), whereas recipients with one dependent child made up the highest percentage in 2010 and 2011. With the inclu-sion of childless couples in 2012, childless couples marked the se-cond highest after recipients with two dependent children in 2012.

Table 30. Distribution by Number of Dependent Children

(1,000 Households, %) Year All

Childless

with spouse 1 child 2 children >3 children n n % N % n % n % 2009 591 - - 269 45.5 272 46.0 49 8.5 2010 566 - - 267 47.2 252 44.5 47 8.3 2011 522 - - 256 49.0 222 42.5 43 8.2 2012 752 238 31.7 215 28.7 240 31.9 58 7.7 Note. From National Tax Statistics Yearbook, by National Tax Service, each

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Figure 11. Distribution by number of dependent children (1,000 households). From National Tax Statistics Yearbook, by National Tax Service, each year.

J. Distribution by Frequency of Receiving EITC

As the eligibility requirements for the EITC were eased in 2012, the sum of new recipients added over the course of the program stood at 416,000 households, or 56.6% of all recipients. Those re-ceiving an EITC for 4 consecutive years since the program’s incep-tion in 2009 totaled 85,000 households, or 11.6% of all recipients in 2012.

Table 31. Recipients of EITC by Distribution Frequency (N = 735a)

Division 1 time 2 times 3 times 4 times No. of households 416 134 100 85 Percentage of

households 56.6 18.2 13.6 11.6

Note. a Excluding 17,000 households with missing data. From National Tax

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45 5. Future Plans

5. Future Plans

In the United States, the Earned Income Tax Credit (EITC), some-times called the EIC, was introduced in 1975 to help the working poor keep more of what they earned. The EIC is a refundable fed-eral income tax credit for low- to moderate-income working indi-viduals and families. The U.S. Congress originally approved the tax credit legislation in 1975 in part to offset the burden of Social Security taxes and to provide an incentive to work. When the EITC exceeds the amount of taxes owed, it results in a tax refund to those who claim and qualify for the credit.

In Korea, the EITC was introduced in 2008 as a means to aid those working poor who may have fallen into the gap between social insurance and the National Minimum Living Standard Security System and to minimize the financial burden borne by the govern-ment. The EITC was designed to target this group of people who suffer vulnerabilities under the existing social safety net composed of social insurance programs and public assistance such as the Na-tional Minimum Living Standard Security System. The program provides financial assistance to this group in order to keep them from slipping into destitution while at the same time encouraging them to strive to remain above the poverty line by providing them with an incentive to work.

However, because of initial budget constraints, the EITC was de-signed to gradually expand its target population, depending on its capability to track the income of potential candidates for this pro-gram, from employees whose income is relatively easy to track to other target groups, such as the self-employed, by improving the tax compliance of those groups. Accordingly, insurance solicitors and door-to-door salesmen, whose income is relatively easy to track, were included in the target population in 2011.

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46

The EITC is scheduled to include self-employed business operators beginning in 2014 and is expected to cover 6.46 million self-employed business operators by that time. In order to expand the EITC target population to include the self-employed, the National Tax Service put forth the Self-Employed Income Capture Road Map to improve the tax compliance level of self-employed by 2014. However, further development is needed to achieve the targeted level to expand the EITC to the self-employed without any admin-istrative problems in 2014.

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47 References

References

References in English

OECD (2003), OECD Employment Outlook 2003, Paris.

OECD (2008), Taxing Wages 2007–2008, Paris.

OECD (2009), OECD Employment Outlook 2009, Paris.

References in Korean

Kim, Jae-Jin et al. (2005), Study on the feasibility and methods of

introducing an Earned Income Tax Credit scheme in South Korea, Presidential Committee on Social Inclusion.

Lee, Hye-won (2012), “Analysis of the State of the Near Poor by means of Financial Panel Survey”, Monthly Finance Forum 192, Korea Institute of Public Finance.

National Tax Service, Annuals of National Tax, Annual Publica-tion.

OECD (2012, May), Inform 900,000 households of application for

2011 Earned Income Tax Credit reversion.

OECD (2012), This year’s Earned Income Tax Credit to be

pro-vided prior to Chuseok [Press release]. E-tax Korea. (http://www.etaxkorea.net)

Korean Statistical Information Service. (http://kosis.kr/) National Health Insurance Corporation. (http://www.nhic.or.kr) National Pension Service. (http://www.nps.or.kr)

Figure

Updating...

References