How Japanese Income Tax is Calculated

Can you help me?

Q: Can you help me? Can you explain the income tax withholding statement?

A: The “kyuyo-shotoku-gensen-choshu-hyo” (給与所得源泉徴収票) or “income tax withholding statement” can be obtained from your place of work. Statements for the previous tax year are usually available in January each year. An example for Mr. Nic Smith is shown below:

Income Tax Withholding Statement Key
A) Total salary earned during the year
B) Income after employment income deduction
C) Total fixed-rate exemptions
D) Income tax withheld at source
E) Marital status and spousal exemption
F) Number of dependents in each category; specific dependents (16 - 22 year old relatives), elderly dependents (70 and over), others (includes children).
G) Fixed Rate Exemptions (social insurance, life insurance, accident / injury insurance, mortgage, spouse’s income, personal pension, long-term accident insurance.)
H) Employer’s name and address

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Q. How is income tax calculated?

Step 1) Calculating Tax Liability on Salary

Your "Income after employment income deduction (B)” (kyuyo shotoku) is equal to your “Total Annual Income (A)” minus your “Employment Income Deduction”; how much your Employment Income Deduction is depends on which income bracket you fall under - see Table 1.

In Mr. Nic Smith’s case (see withholding statement example):

■ Employment Income Deduction (Table 1)

Annual Income　(Yen)	Employment Income Deduction
Up to 1,625,000	650,000 Yen
1,625,001 to 1.8 million	Annual Income x 0.4
1,800,0001 to 3.6 million	Annual Income x 0.3 + 180,000 Yen
3,600,0001 to 6.6 million	Annual Income x 0.2 + 540,000 Yen
6,600,0001 to 10 million	Annual Income x 0.1 + 1.2 million Yen
Over 10 million	Annual Income x 0.05 + 1.7 million Yen

(A) Total Annual Income	minus	Employment Income Deduction	=	Earned Salary Exemption
5,000,000	minus	5,000,000 X 0.2 + 540,000	=	1,540,000

So Mr. Smith’s "Income after employment income deduction (B)" is:

(A) Total Annual Income

(給与収入kyuyo-shunyu)

Earned Salary Exemption

(給与所得控除kyuyo-shotoku-kojo)

(B) Income after employment income deduction

(給与所得 kyuyo shotoku)

5,000,000 Yen

1,540,000 Yen

3,460,000 Yen

Step 2) Calculating total taxable income (課税所得 kazei-shotoku)

Your taxable income (課税所得 - kazeishotoku) is your income after tax on salary(給与所得 kyuyo shotoku) – the total after step 1 -　minus any fixed-rate allowances for social security payments, or dependants.

Everyone gets a basic allowance of 380,000 for income tax.

Taxpayers with dependents or individuals with certain circumstances may, in some cases, be eligible for tax exemptions.

Mr. Smith gets a 600,000 Yen exemption for his Social Welfare Insurance contributions, a 100,000 exemption for his life insurance payments, a 380,000 exemption for his dependant spouse, a 760,000 exemption for his other dependants, and a basic deduction of 380,000. Mr. Smith has a deductible total of 2,220,000 Yen.

B) Income after employment income deduction

(給与所得 kyuyo shotoku)

minus

total fixed-rate exemptions

(所得控除　shotoku-kojo)

Total Taxable income

(課税所得 kazei-shotoku)

3,460,000 Yen

2,220,000 Yen

1,240,000 Yen

Step 3) Calculating total income tax liability

Tax brackets for total income tax calculation changed in 2007 from a 4-tier system (10%, 20%, 30%, & 37%) to a 6-tier system (5%, 10%, 20%, 23%, 33%, & 40%).

Taxable Income (Yen) (a)	Rate (b)	Exemption (Yen) (c)
1000 to 1,949,000	5%	0
1,950,000 to 3,299,000	10%	97,500
3,300,000 to 6,949,000	20%	427,500
6,950,000 to 8,999,000	23%	636,000
9,000,000 to 17,999,000	33%	1,536,000
Over 18 million	40%	2,796,000

A person’s total income tax liability = a x b minus c

In Mr. Smith’s case his total taxable income is 1.24 million Yen, therefore his income tax rate is 5%.

Mr. Smith’s is liable for …1,240,000 X 0.05 - 0 = 62,000 Yen

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