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Author Han Kang, the first Korean to win the Nobel Prize in Literature in 2024, has once again drawn attention for not paying taxes on her prize money of approximately 1.4 billion won. Unlike other prizes, the Nobel Prize is an exceptional case where taxes are not levied and is listed as a non-taxable item of miscellaneous income under the Income Tax Act. However, most prizes are classified as miscellaneous income and are subject to taxation, so it is important to understand the taxation method and tax laws for prize money. This time, we will cover the taxation method for general prize money and examine why special prizes such as the Nobel Prize are tax-free.
1. Taxation method for prize money classified as other income
According to the Income Tax Act, prize money is usually classified as miscellaneous income. Miscellaneous income generally includes unpredictable temporary income such as prize money for a competition targeting an unspecified number of people, prize money from a contest, lottery winnings, etc. For such prize money, the entity that pays the prize money is responsible for withholding tax, and 80% of the prize money is set aside as necessary expenses and taxed.
For example, if you receive a prize in a competition, the entity that pays the prize deducts 80% of the prize money as necessary expenses, and withholds a 22% tax rate (including local income tax) on the remaining amount. The prize payer must report and pay the tax by the 10th day of the month following the date of payment.
However, tax authorities interpret that the 80% necessary expenses provision does not apply to prize money from competitions held for specific groups rather than unspecified numbers of people (e.g., competitions held for employees and their families), and in this case, you should be careful to pay tax by applying a 22% tax rate to the entire amount of prize money paid.
2. Taxation criteria for other income and comprehensive income tax reporting
In principle, other income does not end with the payment of withholding tax, and must be reported together with other income (e.g., business income, employment income, etc.) when filing a comprehensive income tax return in May. However, if the amount of other income after deducting necessary expenses is 3 million won or less, you can choose between comprehensive taxation and separate taxation. For example, if the comprehensive income tax base is 50 million won or less (income tax rate 15% or less), it may be advantageous to choose comprehensive taxation and receive a refund of withheld taxes, and if it exceeds 50 million won (income tax rate 24% or more), separate taxation may be advantageous.
Therefore, if the person who received the prize money wants to combine it with his or her other income, it is important to choose the appropriate taxation method when filing his or her tax return. In this regard, the prize winner may need to compare the amount of tax withheld at source with the actual amount of tax to check whether a refund is due or pay additional tax if necessary.
3. Nobel Prize Prize Money and Tax Exemption Regulations
However, not all prizes are taxed in this way. The Nobel Prize is specifically included in the miscellaneous income tax exemption items and is therefore not taxed. This is because the Income Tax Act explicitly stipulates that the Nobel Prize is a tax-exempt prize. Therefore, the Nobel Prize in Literature awarded to author Han Kang is not subject to tax, and the winner can receive the entire prize money as is.
Similarly, sports award winners under the National Sports Promotion Act, or prize money received from the state or local government (e.g., Olympic medalists' prize money, etc.) are also exempt from taxation. In addition, reward money for reporting crimes is also classified as non-taxable prize money, and this is also exempt from tax according to the tax-exempt provisions of the Income Tax Act.
4. Minimum Taxation Rules for Other Income
There are also minimum taxation regulations for other income. For example, if the amount of other income is less than 50,000 won (less than 250,000 won based on the prize money), the amount is considered small and no tax is imposed. Therefore, if the prize money is small, it is excluded from taxation and is not taxed.
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