Why There’s No Year-End Adjustment for Resident Tax in Japan
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Author Aki Kojima

Certified Public Tax Accountant with an MBA, member of the Association of Micro M&A Professionals, and licensed real estate agent. I provide tax advisory services, asset management consulting, and support for business owners, freelancers, and sole proprietors. I have extensive experience in international sales, accounting, labor relations, recruiting, and IT management. In addition to my professional work, I write articles and books on taxation and financial education. I enjoy swimming, reading, photography, and spending time in nature with my two children.

Individual & Freelancers

August 8, 2023

August 8, 2023

Here, we’re diving into a topic that often raises eyebrows: Why doesn’t Japan have a year-end adjustment for resident tax, even though there’s one for income tax? Let’s unravel this mystery together.

Contents
  1. Understanding the Calculation of Income Tax
  2. The Year-End Adjustment Mechanism for Income Tax
  3. How Resident Tax is Calculated
  4. Wrapping Up

Understanding the Calculation of Income Tax

To grasp the concept, let’s walk through a hypothetical scenario. Imagine you earn a monthly salary of 300,000 yen. From this, you deduct social insurance, which we’ll assume is 50,000 yen for simplicity. This leaves you with a take-home amount of 250,000 yen. If you have a dependent, the monthly income tax deducted would be 4,920 yen, summing up to an annual tax payment of 59,040 yen.

The Year-End Adjustment Mechanism for Income Tax

The year-end adjustment for income tax is an intriguing process. Every month, your tax is estimated using a quick calculation table called the Withholding Tax Amount Table. However, this is reconciled at the year’s end based on your annual earnings.

For instance, with an annual income of 3.6 million yen, you’d subtract the basic deduction of 380,000 yen and the salary income deduction of 1.26 million yen. This results in a taxable income of 980,000 yen. At a rate of 5%, the actual income tax on this would be 68,000 yen. This means in December, you’d pay an additional income tax of 8,960 yen to bridge the gap between the estimated and actual tax amounts.

How Resident Tax is Calculated

The resident tax calculation uses the same taxable income of 980,000 yen. Based on this adjusted income for December 2023, the resident tax from June 2024 to May 2025 is set. With a tax rate of 10%, the resident tax amounts to 98,000 yen. Since the resident tax calculation is precise and doesn’t rely on approximations like the income tax, there’s no need for a year-end adjustment.

Wrapping Up

I hope this sheds light on why Japan doesn’t have a year-end adjustment for resident tax. If you have any queries or thoughts, please drop them in the comments section. And don’t forget to like, share, and subscribe for more insights into the world of taxes. Until next time, thank you for tuning in!

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