The System of Individual Income Tax in Japan: For Salaried Individuals
【Koshida Accounting Firm Column Date:】
Hi, my name is Taisei Koshida, and I am a certified public accountant and tax accountant.
I aim to assist non-Japanese business owners who need help with reading or writing in Japanese. If you find the Japanese tax return system challenging, I can help you with your tax filings.
This blog may help if you need clarification about the system of individual income tax in Japan for salaried individuals.
Overview of the Calculation Method
The calculation method for salaried income, including executive compensations, is as follows:
(1) Salary income – salary deduction = taxable salary income
First, taxable salary income is determined by subtracting the salary deduction from the salary income.
(2) Taxable salary income – income deduction = taxable income
Next, taxable income is determined by subtracting the income deduction from the taxable salary income.
(3) Taxable income * tax rates = total income tax amount
Lastly, the total income tax amount is determined by multiplying the taxable income by the tax rates.
The Calculation Method of Taxable Salary Income (refer to 1(1))
Salary income – salary deduction = taxable salary income
(1) Salary Income
First, salary income is calculated based on the total received salary for the calendar year, which includes bonuses. However, transportation expenses are generally not included.
(2) Salary Deduction
Next, the salary deduction is determined based on the amount of salary income. If the salary income is 1,620,500 yen or less, the deduction is 550,000 yen; if it’s 1,800,000 yen or less, the deduction is salary income * 40% – 100,000 yen; if it’s 3,600,000 yen or less, the deduction is salary income * 30% + 80,000 yen; if it’s 6,600,000 yen or less, the deduction is salary income * 20% + 440,000 yen; if it’s 8,500,000 yen or less, the deduction is salary income * 10% + 1,100,000 yen; and if the salary income exceeds 8,500,000 yen, the deduction is set at 1,950,000 yen, which is also the upper limit.
Method of Calculating Taxable Income (refer to 1(2))
Taxable Income = Salary Income – Income Deductions
(1) Income Deductions
These deductions apply to those who qualify, for example: ① Social Insurance Deductions y All payments for health insurance premiums, pension contributions, and other related expenses are deductible. ② Insurance Deductions A portion of payments for life and earthquake insurance is deductible. However, only policies contracted in Japan qualify. ③ Spouse Deduction If the spouse’s income is below a certain threshold, a set amount (up to 480,000 yen) is deducted. ④ Dependent Deduction For dependent children aged 16 and above, as well as for parents, an amount ranging from 380,000 yen to 630,000 yen per person is deductible. ⑤ Basic Deduction Up to 480,000 yen is deductible, depending on the taxable income. ⑥ Medical Deduction A specific amount is deductible when medical expenses exceed a certain threshold. ⑦ Donation Deduction When donating to specific organizations, a certain amount is deductible.
Method of Calculating Income Tax( refer to 1(3))
Taxable Income × Tax Rate = Income Tax Amount The tax rate varies between 5% and 45%, depending on the taxable income. Different rates are applied within specified income ranges. The rates are: 5% for taxable income up to 1,949,000 yen; 10% for 1,950,000 yen to 3,299,000 yen; 20% for 3,300,000 yen to 6,949,000 yen; 23% for 6,950,000 yen to 8,999,000 yen; 33% for 9,000,000 yen to 17,999,000 yen; 40% for 18,000,000 yen to 39,999,000 yen; and 45% for taxable income over 40,000,000 yen.
Tax Deductions
Additionally, there are tax deductions such as the mortgage loan deduction for those with a mortgage in Japan and the foreign tax deduction to avoid double taxation. If you qualify for these, you can subtract them from the income tax amount calculated above.
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