Articles

A Special Reduction of Personal Income Tax and Inhabitant Tax for FY2024

Vol 1. Outline

1. Introduction

In accordance with the tax reforms for 2024, a special tax reduction (“Teigaku Genzei”) will be implemented for the income tax and individual inhabitant tax. The related payroll and administrative tasks will get somewhat complicated. Through this three-part series (No.1 Outline of the tax reduction, No.2 Monthly payroll procedure, and No.3 Year-end payroll procedure (“Nenmatsu Chosei”), we will explain about the tax reductions and related administrative procedures.

Here, it will be focused on the case of salaried employees.

2. Scheme

(1) Income Tax

1. Eligible Employees

• Those whose annual income for 2024 is JPY 18.05 Million (equivalent to earnings income of JPY 20 Million) or less.

2. Amount of Deduction

(1) Individuals (Only residents of Japan) : JPY 30,000

(2) Spouse and dependents of the same household (Only residents of Japan) : JPY 30,000 per person

• “Residents” are those individuals who have a domicile in Japan or have been living in Japan for at least one year. “Non-residents” are not eligible for this tax reduction.
• It also applies to dependents under the age of 16 who do not qualify for the dependent exemption.

3. Implementation

The tax reduction will be executed by deducting from the tax withheld in the first payroll in June and thereafter, and any amount not fully reduced in June will be deducted sequentially in the subsequent months. It is called Monthly tax reduction procedure. 

• Even if the estimated annual taxable income is over JPY 18.05 Million (equivalent to JPY 20 Million in earnings from employment salary), it is still subject to the reduction process. The deducted amount will be adjusted at the time of the year-end procedures.  

• As it is not often the case when the total amount to be reduced can be deducted at a time, it is recommended that a record should be kept in the form of a worksheet like below. It is not mandatory for the employers to keep such a record. 

download worksheet

• (Example) In the case of a spouse and two dependents living in the same household, the total tax reduction is JPY 120,000.　If fully executed in a single withholding, the amount of salary after deduction of social insurance exceeds approximately JPY 1,000,000 (if both dependents are 16 years of age or older).

• The final process will be at the time of the year-end adjustment (“Nenmatsu Chosei”). The tax reduction procedure will not be carried forward to 2025. The final process is called year-end tax reduction procedure.

(2) Inhabitant Tax

1. Eligible Employees

• Those whose annual income for 2024 is JPY 18.05 Million (equivalent to earnings income of JPY 20 Million) or less.

2. Amount of Deduction

• Individual (Only residents of Japan) : JPY 10,000
• Deductible spouse or dependents (Only residents of Japan) : JPY 10,000 per person

3. Implementation

• Withholding tax process will not be executed in June. 
• One eleventh (1/11) of annual tax payable after the tax reduction shall be withheld every month from July 2024 to May 2025.

• In the case of ordinary tax payment (“Futsu Choshu”), the reduction shall be made from the first payment of the fiscal year, and any amount not fully deducted shall be deducted from the second and subsequent payment of the fiscal years.

(3) Q&A

 1. What happens to any tax reduction not fully deducted from my salary?

This reduction will not apply to any salaries paid from January 2025 onwards. The portion that cannot be fully deducted will be paid as a benefit. If the case is anticipated, the benefit will be provided by employees’ municipality before the year end.

2. Does the tax reduction also apply to bonuses?

Yes, this applies to withholding tax for bonuses as well.

　

3. My total taxable income is estimated over JPY 10 Million, am I not eligible for the tax reduction for my spouse? The total income of the spouse is less than JPY 480,000.

As far as your spouse’s income is less than JPY 480,000, you are eligible to get your spouse’s tax reduction. However, if it exceeds JPY 480,000, a tax reduction will be granted from the spouse’s own withholding tax.

【Treatment for spouse’s tax reduction】

4. It is highly possible that the total income for 2024 will exceed JPY 18.05 Million (salary income of JPY 20 Million), is it ok not to be subject to the monthly tax procedure?

Even if the total income is expected to exceed JPY 18.05 Million, the monthly reduction procedure is executed in the same manner. The reduced taxes will be adjusted at the time of the year-end procedures.  

A Special Reduction of Personal Income Tax and Inhabitant Tax for FY2024

Vol 2. Monthly Tax Reduction Procedures

1. 　Check eligible employees

The Employees who are employed with a company as of June 1, 2024, and are residents, to whom  “Column 甲(kou)” of the Withholding Tax Amount Table is applied for withholding at source of salaries, etc. (hereinafter referred to as “employees on the reference date”)

• Employees not falling under the category of “employees on the reference date”

(1) Employees to whom “Column 乙(otsu) or 丙(hei)” of the Withholding Tax Amount Table applies for withholding at source of salaries, etc. to be paid on or after June 1, 2024 (employees who have not submitted an Application for Exemption for Dependents), 

(2) Employees who start working for a company on or after June 2, 2024,

(3) Employees who retired from a company on or before May 31, 2024,

(4) Employees who left Japan and became non-residents on or before May 31, 2024.

2. 　Monthly Reduction Procedure

The following points should be checked with reference to Application for Exemption for Dependents. 

(1) Confirmation of a spouse living in the same household who is a resident

A spouse qualified for withholding deduction who is listed on the 

Application for Exemption for Dependents and those whose total amount of income is JPY 480,000 or less, are considered to be spouses living in the same household.

(2) Confirmation of the number of dependents who are residents

The dependents qualified for deduction who are listed on the Application for Exemption for Dependents (扶養控除等異動申告書) and those under 16 years of age (listed as a matter related to inhabitants’ tax).

(3) Application pertaining to a spouse living in the same household, and not listed on the Application for Exemption for Dependents

A spouse living in the same household and dependents under the age of 16 years who are not listed on the Application for Exemption for the dependents may be included in the number of employees of the tax reduction amount if the employer receives an “Application for Fixed-amount reduction of Personal Income Tax for Withholding Tax”（「源泉徴収に係る定額減税のための申告書」）. 

It should be checked that the application to confirm that the estimated total income of a spouse living in the household is JPY 480,000 or less.

“Application for Fixed-amount reduction of Personal Income Tax for Withholding Tax”（「源泉徴収に係る定額減税のための申告書」）

3.  Points to be noted

In case of any changes for spouse and dependents (marriage, divorce, birth, death, and so on) during the tax reduction period, the monthly deduction applied in the first month will be kept (no changes during the tax reduction period), and these changes will be reflected and adjusted at the time of year-end adjustment or final tax returns.

4.  Presentation of the tax reduction on pay slips

The reduction amount should be presented as “Amount of fixed-amount reduction (income tax): JPY XXX”（「定額減税額（所得税）×××円」） or “Fixed-amount reduction: JPY XXX” （「定額減税××円」）in an appropriate section of the payment slips (salary, bonus, and so on).

The above is not required for the pay slips issued at the year-end as the withholding records(源泉徴収票) with reduction amount are issued at the same time. 

5.  Tax Payment Slips (“Noufu-sho”)

As for the tax payment slips (”Noufu-sho＜納付書>”), tax withheld after the reduction should be filled in the column of “Tax Amount (税額)”. It is not necessary to describe the tax reduction applied on the tax payment slips. 

It should be furnished even in the case of no withheld amount after the reduction.  

A Special Reduction of Personal Income Tax and Inhabitant Tax for FY2024

Vol 3. Year-End Tax Reduction Procedure

Detailed guidelines will be released on the NTA website in September 2024.

1. 　Check eligible employees for the year-end adjustments

   As those employees, whose annual taxable income is over JPY 18,050,000, are not eligible for the tax reduction, the amount deducted in the monthly tax reduction procedure will be added back to the tax amount due in the year-end adjustment (“Nenmatsu Chosei<年末調整>”). 

The year-end adjustment is not applicable to those who have JPY 20 Million or more in annual salary income.

The total taxable income data shown in the Application for Basic Exemption (基礎控除申告書) is referred to judge whether the annual taxable income exceeds JPY 18,050,000 or not. 

　　

2. 　Flow of completing tax reduction at the time of year-end adjustment

In computing the annual tax amount, this tax reduction is deducted from the amount after applying special deduction for housing loans (if applicable).

The annual tax amount is calculated by multiplying the income tax amount after deducting the amount of tax reduction at the year-end adjustment by 102.1% (special income tax for reconstruction).

3. 　Calculation of tax reduction after the year-end adjustment

To calculate the amount of tax reduction at the time of year-end adjustment for each qualified employee, confirm the presence/absence of a spouse living in the same household and the number of dependents (all limited to residents) as of the time of the year-end adjustment using the “Application for Exemption for Dependents” and “Application for Exemption for Spouse” (配偶者控除申告書), and calculate the sum of “JPY 30,000 for the individual themselves” and “JPY 30,000 for the spouse and each dependent living in the same household”.

4. 　In case the tax amount is not fully deducted by year-end adjustment

　　　The monthly reduction procedure will not be carried forward to next year. In this case “Amount not deducted JPY XXX” (控除外額XXX円) is stated on the withholding slip (源泉徴収票). The amount not deducted will be provided by employees’ municipality after 2025. If anticipated, it will be provided as benefits.

【References】

Guide for Fixed-amount Reduction of Personal Income Tax for FY2024 Pertaining to Withholding Tax System for Salaries – National Tax Agency

136.pdf (nta.go.jp) 

Disclaimer: All views expressed in this article are solely for informational purposes and should not be construed as legal advice. This information is for reference only and is bound to change in case of any amendments or changes to applicable laws. We do not assume any responsibility or liability for any errors or omissions in the content of this article, and do not make any warranties about the completeness, reliability and accuracy of the information expressed in this article.