Starting from June 2024, the Flat-amount Cut of Personal Income, or Flat-amount Tax Cut, is carried out. Residents who are taxpayers in Japan will be able to receive a tax reduction on income tax and resident tax. The Flat-amount Tax Cut is a special taxation measure by the Japanese government, conducted with the aim of completely overcoming the prolonged deflation. If you are a resident employed by a company in Japan, you can check if you are eligible for a tax cut by reviewing your pay slip. Your company will handle the reduction procedure, so you will not have to take any action yourself. For expats living in Japan, questions may arise: are you eligible for the tax cut, and in what form can you receive the flat-rate tax cut? Let’s see how it works.
What is a Flat-amount Tax Cut?
The Flat-amount Tax Cut, or Teigaku-Genzei定額減税, is a tax reduction that deducts a certain amount of income tax and resident tax from the salary of residents working in Japan. The flat-amount tax reduction is carried out for one year, from June 2024 to May of the following year, and taxpayers can receive a special taxation measure on their wages until the tax reduction reaches the limit.
What is the reduction by the Flat-amount Tax Cut?
The reduction rate is based on 30,000 JP Yen for income tax and 10,000 JP Yen for resident tax. The maximum reduction is the sum of the number of dependents living in the same household and the taxpayer multiplied by 30,000/10,000 JP Yen.
Calculation for the maximum amount of the tax reduction
Income tax reduction
Reduction of 30,000 JPY x (Taxpayer + the number of the dependents)
e.g. A taxpayer without dependents
(1 Taxpayer) x 30,000 = 30,000 JPY
e.g. A taxpayer with 2 dependents
(1 Taxpayer + 2 dependents) = 3 persons
30,000 x 3 persons = 90,000 JPY
Resident tax reduction
Deduction of 10,000 JPY x (Taxpayer + the number of the dependents)
e.g. A taxpayer without dependents
(1 Taxpayer) x 10,000 = 10,000 JPY
e.g. A taxpayer with 2 dependents
(1 Taxpayer + 2 dependents) = 3 persons
10,000 x 3 persons = 30,000 JPY
How is the tax reduction applied to wages?
The Flat-amount Tax Cut measure reduces taxes until reaching the maximum limit, not continuously throughout the one-year period. The reduction applies to income tax and resident tax deducted from wages, ending when it reaches the maximum amount.
Here is an example, the case of income tax reduction for a taxpayer Mr. Smith who has no dependents.
NOTE: This example is just for easy understanding. The actual salary calculation differs from this example as it involves resident taxes, insurance premiums, allowances, etc.
– The monthly salary of Mr. Smith is 300,000 JPY
– The reduced income tax is: 1 Taxpayer x 30,000 = 30,000 JPY
Normally, income tax is deducted from his salary of 300,000 JPY, and the amount received after deducting 5,950 JPY from 300,000 JPY is paid to Mr. Smith as his salary. However, with the Flat-amount Tax Cut measure, 5,950 JPY is subtracted from the income tax on his salary, reducing the amount of income tax payable to 0 JPY.
Since Mr. Smith is qualified for a tax reduction until his maximum tax cut amount reaches the limit, he can receive the reduction until it reaches 30,000 JPY. The table below shows how Mr. Smith’s tax reduction works by month, and he can receive a tax reduction until November, when the max limit reaches 30,000 JPY.
Example: Income taxation before/after the Flat-amount Tax Cut
| Mr. Smith’s income | Income tax | Income tax after reduction |
Rest of Mt. Smith’s max reduction limit of 30,000 |
|
| June | 300,000 | 5,950 | 0 | 30,000 – 5,950 = 24,050 |
| July | 300,000 | 5,950 | 0 | 24,050 – 5,950 = 18,100 |
| August | 300,000 | 5,950 | 0 | 18,100 – 5,950 = 12,150 |
| September | 300,000 | 5,950 | 0 | 12,150 – 5,950 = 6,200 |
| October | 300,000 | 5,950 | 0 | 6,200 – 5,950 = 250 |
| November | 300,000 | 5,950 | 5,700 | 0 |
| December | 300,000 | 5,950 | 5,950 | 0 |
The tax reduction also applies to bonuses.
Japanese companies typically pay bonuses, usually in June and December, and taxes are deducted when these bonuses are paid. If the tax reduction is applied to the income/resident tax on bonuses, the limit for the tax reduction can be reached earlier than in the example table for Mr. Smith above.
The maximum reduction limit will change if the number of dependents increases or decreases.
For example, if the number of dependents changes, such as having a new baby born in October, the tax reduction limit will be recalculated from that point on. The deduction is adjusted at the end of the year.
Are expats eligible for the Flat-amount Tax Cut?
Expats in Japan who meet the following conditions are eligible for the tax reduction.
– Residents who have a domicile and have resided in Japan for one year or more continuously until the present.
– Taxpayers of income tax for 2024 in Japan
– The total income for income tax purposes for 2024 is 18,050,000 yen or less.
If you are a resident employed by a Japanese company and meet the above conditions, your company must have handled it for you. You can check the reduction on your pay slip where it shows Flat-amount Tax Cut (Income Tax.) /定額減税額 (所得税.)
How do expats receive the tax reduction?
Income tax will be handled in one of the following salary formats for expats who are employees living and paying tax in Japan.
(1) Gross pay: The total amount that includes provisional withholding tax is paid as salary. Income tax will be settled at the time of filing a tax return.
(2) Net pay: The salary is paid minus the income tax calculated according to regulations. There is no year-end adjustment.
(3) Tax equalization (TEQ): The amount of salary is paid minus hypo tax. Settlement will be made at the year-end adjustment.
In the case of (1) Gross pay, the tax cut will be deducted through tax returns. As for (3) TEQ, it will be deducted through year-end tax adjustments. However, in the case of (2) Net pay, it will not be subject to year-end tax adjustments, so you may not be able to receive the tax reduction.
No matter what kind of wage payment system is in place, if you are eligible for the Flat-amount Tax Cut, review your pay slip to ensure that the reduction is reflected while the special tax measure is in effect. The Flat-amount Cut is to be displayed on pay slips as required by this measure. It is also important to verify if your employer in your home country is informed about the implementation of the Flat-amount Tax Cut.
Information by Japanese National Tax Agency:
Guide for Flat-amount Cut of Personal Income Tax for FY2024
https://www.nta.go.jp/publication/pamph/gensen/teigakugenzei/136.pdf