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Credit Card vs. Debit Card Strategy for Maximum Refund

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To optimize your tax refund from card spending, you must understand the "25% Rule" and how to strategically rotate between your credit and debit cards.

1. The 25% Rule​

Under Korean tax law, you can only receive deductions for the portion of your spending that EXCEEDS 25% of your Total Annual Salary.

  • Below the 25% threshold: Spending in this range provides zero tax benefit.
  • Above the 25% threshold: Deduction rates apply as follows:
    • Credit Cards: 15%.
    • Check/Debit Cards & Cash (with receipts): 30%.
    • Public Transportation / Traditional Markets: 40%.

2. The Optimal Strategy​

Phase 1: Early Year (Before hitting the 25% threshold)​

Priority: Use Credit Cards.

  • Reason: Since spending below the 25% mark doesn't count toward a tax deduction anyway, it is mathematically wiser to use credit cards to collect reward points, miles, and cashback during this period.

Phase 2: Later Year (After hitting the 25% threshold)​

Priority: Switch to Check/Debit Cards or Cash.

  • Reason: Once you cross the 25% floor, every won spent on a debit card or via cash receipt earns you double the deduction rate (30% vs. 15%) compared to a credit card, significantly boosting your final refund check.

Practical Example​

Assume your annual salary is 40 million KRW. Your 25% threshold is 10 million KRW.

  1. You should spend the first 10 million KRW using your Credit Card to maximize banking perks.
  2. From the 11th million KRW onwards, switch to your Debit Card. For every 1 million KRW spent, you will subtract 300,000 KRW from your taxable income (compared to only 150,000 KRW if you had continued using a credit card).

[!TIP] You can check your cumulative spending on your banking apps or use the "Year-end Settlement Pre-calculation" service on Hometax (usually available from October) to see if you have crossed the 25% threshold.