Severance pay (retirement income) is taxed separately from wage income. The calculation: (1) subtract the service-year deduction from severance pay (KRW 1 million/year for ≤5 years, KRW 2 million/year for 6–10 years, KRW 2.5 million/year for 11–20 years, KRW 3 million/year beyond 20 years); (2) convert to an annualized figure — (severance – service-year deduction) ÷ years of service × 12; (3) subtract the converted-salary deduction to get the taxable base; (4) apply the tax rate, then divide back by years of service. This smooths out income accumulated over many years so it isn't taxed all at once in a high bracket.
Foreign employees who receive severance pay in Korea are taxed the same way, and it remains Korean-source income even if received after departure.
Service-year deduction brackets
Rolling into an IRP account cuts the tax
If you transfer severance pay into a personal retirement pension (IRP) account and draw it down as a pension instead of taking it as a lump sum, you pay only about 60–70% of the standard retirement tax (the longer the payout period, the bigger the reduction). If you plan to leave Korea, check in advance whether to keep or close a domestic IRP account.