U.S. taxes for Americans in South Korea: what to file, and how to catch up.
Teachers, military families, engineers and Korean-American families all end up in Korea, and many stop filing U.S. returns along the way. All of them still file a U.S. return every year once their income is over the filing threshold. Korean tax, or the foreign earned income exclusion, usually covers the U.S. bill on wages. The details to get right are Korean funds, ISAs and retirement pay. Most people who fell behind can catch up under the Streamlined procedures, with no penalty if they qualify.
Sound familiar?
- You came to teach English and never thought about U.S. returns.
- Your employer pays into the National Pension for you.
- You opened an ISA because it saves Korean tax.
- Your Korean bank asked for your U.S. tax number.
How does the IRS treat Korean pensions and savings?
Every one of these goes on your FBAR. What differs is how the IRS taxes them.
| Account | U.S. treatment | |
|---|---|---|
| National Pension (NPS) | Under the treaty, only Korea can tax payments from it, even for U.S. citizens. | Usually fine |
| Severance pay and retirement pensions | Severance pay is taxable for the U.S. when you receive it. DC and IRP accounts may not be tax-deferred in U.S. eyes. | Check first |
| ISA | Tax-free in Korea only. Income and gains are taxable for the U.S., and funds inside are usually PFICs. | Watch out |
| Korean funds | Usually PFICs (Form 8621), with complex reporting and tax rules. | Watch out |
| Bank accounts and housing subscription savings | Interest is taxable for the U.S., and the accounts count toward your FBAR total. | Taxable |
| Jeonse deposit | The large deposit you pay a landlord isn’t a financial account, so it doesn’t go on the FBAR. Interest you earn on the money before or after it’s with the landlord is taxable as usual. | Usually fine |
Which Korean investments are PFICs?
Korean investment funds and the ETFs listed on the Korea Exchange, including the ones that track the S&P 500 or Nasdaq. For U.S. tax they’re passive foreign investment companies, or PFICs, and that doesn’t change inside an ISA or a retirement account.
- Each fund needs its own Form 8621 in most years, and gains can be taxed at the top U.S. rate plus an interest charge, unless an election was made in time.
- Not PFICs: shares of individual Korean companies, Korean government bonds, and bank deposits.
- Many Americans in Korea keep investing in U.S. accounts, which avoids the PFIC rules entirely.
What does the U.S.–Korea tax treaty actually say?
The treaty was signed in 1976 and took effect in 1980. For Americans living in Korea, these parts matter most:
- The saving clause. The U.S. can tax its citizens as if the treaty didn’t exist, except for the provisions the treaty lists.
- Teachers. Americans teaching at Korean schools and universities can be exempt from Korean tax for up to two years. The U.S. still taxes that pay, usually covered by the exclusion.
- National Pension. Payments are taxed only by Korea, even for U.S. citizens.
- Relief from double tax. The U.S. gives a credit for Korean income tax, and the local income tax on top, on the same income.
Pension contributions are covered by a separate U.S.–Korea social security agreement, which generally means you pay into one system, not both. Read the U.S.–Korea tax treaty on IRS.gov.
When are Korean and U.S. taxes due?
Both tax years run January to December, so each Korean year lines up with one U.S. return. Your year-end withholding receipt from your employer gives most of what the U.S. return needs.
| South Korea | United States | |
|---|---|---|
| Tax year | January to December | January to December |
| Annual return | May 31, if you have to file. Most employees are settled through their employer’s year-end settlement in February. | April 15, moved to June 15 automatically when you live abroad, or October 15 with an extension |
| Paying the tax | Withheld from your salary each month | April 15, even if you file later |
| Foreign accounts | A report of overseas accounts if they top KRW 500 million in any month | The FBAR, due October 15, filed online |
Foreign tax credit or exclusion: which wins in Korea?
It depends on your salary and how Korea taxes it:
- Teachers and others on modest salaries usually use the foreign earned income exclusion, up to $130,000 for 2025, especially when the treaty exempts their pay from Korean tax.
- Higher earners paying Korean rates that climb to 45%, plus local income tax, usually do better with the foreign tax credit.
- Foreign employees can elect a flat Korean rate on their salary, which changes how much Korean tax there is to credit.
- Families with children often keep the credit, because it allows the refundable part of the U.S. child tax credit, up to $1,700 per child for 2025.
We run your returns both ways before choosing. How we compare the exclusion and the credit.
A worked example: a teacher in Busan
Josh came to Busan in 2019 to teach and stayed. He earns KRW 30 million a year, pays into the National Pension, gets severance at the end of each contract, and holds two Korean ETFs in an ISA. He has never filed a U.S. return.
| Item | How it’s handled |
|---|---|
| Salary | Well under the exclusion, so his U.S. income tax on it is $0. |
| Severance | Earned income in the year he receives it, usually covered by the exclusion too. |
| National Pension | No U.S. tax while he pays in, and the social security agreement keeps him in the Korean system rather than the U.S. one. |
| ISA ETFs | PFICs: a Form 8621 for each, in each year filed. |
| Catching up | Three years of returns and six FBARs under the Streamlined procedures, with no penalty if he qualifies. |
Catching up from South Korea
Most Americans in South Korea who fell behind without meaning to can catch up under the Streamlined Foreign Offshore Procedures: three years of returns, six years of FBARs and, if you qualify, no penalties. If only FBARs are missing, or you’ve moved back to the U.S., another route may fit better. See every IRS catch-up option for expats, compared.
Common questions
Do I pay U.S. Social Security tax in Korea?
Generally not if you pay into the Korean National Pension system. The U.S.-Korea totalization agreement prevents paying into both systems for the same work in most cases.
I teach English in Korea. Do I owe U.S. tax?
Often not, once the foreign earned income exclusion or the foreign tax credit applies. You still have to file, and the Streamlined procedures can catch you up.
Should I sell my Korean funds?
Maybe, but not before getting advice. Selling has tax consequences in both countries. We’ll show you the U.S. cost of keeping versus selling.
Is my severance pay taxable in the U.S.?
Yes, in the year you receive it, as earned income. The exclusion often covers it, depending on your total pay that year.
Is my ISA tax-free for the U.S.?
No. The tax break only applies in Korea. Income and gains inside are taxable for the U.S., and Korean funds inside are usually PFICs.
I’m Korean-American and also hold Korean citizenship. Do I still file?
Yes. Dual citizens are U.S. citizens for tax purposes and file like any American abroad. Many catch up under Streamlined.
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