What is Year End Adjustment?
This time of year signals what will be a busy couple of months for many payroll and HR teams across Japan as they make preparations for the year-end adjustment commonly referred to in Japanese as Nenmatsu Chosei 年末調整.
For salaried workers, Nenmatsu Chosei requires your employer to calculate your income tax for the year (1 Jan 2020 – 31 Dec 2020), and then either withhold additional tax or reimburses you for any tax you have overpaid throughout the year or are owed due to change in status. The adjustment will be reflected in your final paycheck of the year.
Sample of Dependent Form:
Status: Your annual income, residency status, marital status, and number of dependents will be the main factors that affect your tax as a company employee. The form above (which you will receive from your company) asks your status as of 31 Dec 2020. Even if you are single and have no dependents, you are still required to fill out this form.
There are several causes which may require you to pay additional income tax in December including:
- You declared overseas dependents but failed to provide proof documents of remittance and family relationship.
- You included your spouse as a dependent however you earned more than 11,950,000 JPY, and/or your spouse earned above the allowed threshold* therefore you are disqualified from a spouse deduction.
- Your non-spouse dependent* earned above the threshold* which would allow them to be claimed as your dependent.
* Both “threshold” and “dependent” status are factors in how your income and your dependents income will be treated so you will need to consult with your payroll provider or HR department for specific numbers.
Sample of Insurance Deduction Form:
If you do not have Japanese private insurance you are still required to write down your full name and address and stamp your inkan. If you have Japanese private insurance you will need to fill out the insurance deduction form.
Employees will be under the corporate health insurance (kenko hoken) and workers’ pension (kosei nenkin) system; however, if you paid national health insurance (kokumin kenko hoken) or national pension (kokumin nenkin) for yourself or your dependent, you will need to provide the name of the insurance provider, the name of the insured person, relationship with the insured person and the contribution amount. Please do not forget to submit the original payment receipts with the insurance deduction form.
Sample of Home Loan Forms (1):
Sample of Home Loan Forms (2):
For those with a Japanese home loan, you will soon receive (1) a loan balance letter from your bank and (2) a home loan tax deduction certificate from your local tax office in the mail.
Write down your full name and address and stamp with your inkan on the upper-right section of the deduction certificate. Your HR staff or payroll vendor will be able to calculate your home loan tax deduction.
Q1. Am I required to file a personal tax return (kakutei shinkoku) or is my nenmatsu chosei sufficient?
A1. You are required to file a personal tax return if
- You leave Japan before 31 Dec 2020.
- Your salary is more than 20 million JPY per year (1 Jan 2020 – 31 Dec 2020).
- You work for more than one employer and/or you have secondary income of more than 200,000 JPY per year in Japan.
- You have earned or received overseas income. Please consult a Japanese Certified Tax Accountant (zeirishi).
Other Deductions: If your household medical expenses exceeded 100,000 JPY or you made donations to a qualified charitable organization, you might be eligible for a tax refund. These items can NOT be claimed through the employer (nenmatsu chosei), so you must provide the original receipts and submit a personal tax return on your own.
Q2. Can I get a tax deduction for life insurance I have in my home country?
A2. No. Only private Japanese life insurance is eligible for the tax deductions.
Q3. Is there an English translation available for the forms?
A3. Yes. The Japan National Tax Agency provides an English version.
If you are not sure about your particular situation and would like further clarification please feel free to contact us. We will be happy to put you in contact with the appropriate tax professionals. Alternatively, please speak with your HR department or payroll provider.