[Part 2: Company Employees] Taxes Withheld from Salary and Year-End Tax Adjustment

If you work as a company employee in Japan, your employer generally handles tax procedures on your behalf. Tax is withheld from your salary every month, and the amount is settled through the year-end tax adjustment (nenmatsu chosei) in December, so most people do not need to file a tax return.

However, there are several situations where "leaving everything to the company" can actually work against foreign residents. This article organizes the key practical points, along with the latest figures for 2026 (Reiwa 8).

For information on the "resident category" that determines the scope of taxation, please see Part 1: General Overview.

1. What Is Deducted from Your Pay Slip Item Details Health insurance premium Keeps your out-of-pocket medical costs to 30% Employees' pension insurance premium Funds old-age, disability, and survivor pensions Employment insurance premium Covers unemployment benefits, etc. Income tax (withholding tax) An estimated amount, settled in the December year-end adjustment Resident tax (special collection) A fixed amount based on the previous year's income, collected in 12 installments from June to May of the following year

Income tax and resident tax work in completely different ways. Income tax is an estimated payment based on this year's income, while resident tax is a fixed amount based on last year's income. This difference causes the following phenomenon.

Why Your Take-Home Pay Decreases in Your Second Year in Japan

In your first year in Japan, you have no prior-year income earned in Japan, so no resident tax is charged. Starting in June of your second year, resident tax collection begins, reducing your take-home pay by several thousand to several tens of thousands of yen per month.

This is not because your salary has decreased or your company made a mistake. **It is something that happens to everyone under the system.** If this is your first year in Japan, it is wise to plan your finances with this second-year burden in mind.

2. Employment Income Deduction (For Reiwa 8 / 2026)

Company employees are entitled to a standard deduction based on income, in lieu of claiming actual necessary expenses.

Starting with the 2026 (Reiwa 8) tax year, the minimum guaranteed deduction is 740,000 yen. This consists of the standard amount of 690,000 yen plus a special addition of 50,000 yen, which applies only to the Reiwa 8 and 9 tax years. The standard amount was raised by 40,000 yen from 650,000 yen before the reform.

Note that for salary income between 691,000 yen and under 2,200,000 yen, the revised calculation table applies for the Reiwa 8 and 9 tax years. If you work part-time, it is a good idea to check whether your employer's payroll system has been updated with the latest table.

3. Basic Deduction — A Major Increase for Two Consecutive Years

In response to rising prices, the deduction amount was raised for two consecutive years, in Reiwa 7 and Reiwa 8. For the Reiwa 8 and 9 tax years, the deduction has a two-tier structure, with a special addition on top of the standard amount.

Total Income Amount Basic Deduction (Reiwa 8) 489万円以下 (Up to 4.89 million yen) 1,040,000 yen (Standard 620,000 yen + Special 420,000 yen) 489万円超〜655万円以下 (Over 4.89 million to 6.55 million yen) 670,000 yen (Standard 620,000 yen + Special 50,000 yen) 655万円超〜2,350万円以下 (Over 6.55 million to 23.5 million yen) 620,000 yen (Standard amount only) 2,350万円超 (Over 23.5 million yen) Gradually reduced

The standard amount rose from 580,000 yen to 620,000 yen to reflect the 6.0% increase in the Consumer Price Index over the two years from November 2023 to October 2025 (Reiwa 5–7). A mechanism has now been introduced to review this amount every two years in line with price changes going forward.

The special addition is a temporary measure for the Reiwa 8 and 9 tax years. From the Reiwa 10 tax year onward, it is scheduled to change so that it applies only to those with total income of 1.32 million yen or less, with the addition amount changing to 370,000 yen.

Important: This Will Not Be Reflected in Your Monthly Pay Slip

The special addition portion (420,000 yen or 50,000 yen) will not be reflected in the monthly withholding tax through November 2026 (Reiwa 8). It will all be settled together in the year-end tax adjustment in December 2026.

It is not a mistake if you look at your monthly pay slip and feel that "the deduction hasn't increased." The system is designed so that the full amount is refunded together in December.

4. The 1.78 Million Yen Income Wall

Adding the basic deduction of 1,040,000 yen and the employment income deduction of 740,000 yen means that, in the calculation, no income tax is owed on salary income up to 1.78 million yen.

The so-called "income wall" has changed as follows:

Tax Year Minimum Taxable Threshold Through Reiwa 6 (2024) 1.03 million yen Reiwa 7 (2025) 1.6 million yen Reiwa 8 (2026) 1.78 million yen

However, this is only the threshold for income tax. There is a separate standard for when enrollment in social insurance (health insurance and employees' pension insurance) becomes mandatory, which is determined by your employer's size and your working hours. Please note that "working up to 1.78 million yen will not necessarily always increase your take-home pay."

5. Dependent-Related Deductions (For Reiwa 8) Item Requirement / Amount Income requirement for dependent relatives / spouse eligible for deduction Total income of 620,000 yen or less (1.36 million yen or less if salary income only) Special deduction for specific relatives Relatives aged 19 to under 23. Deduction of 30,000 yen to a maximum of 630,000 yen, depending on income Single-parent deduction Income tax: 350,000 yen (380,000 yen from the Reiwa 9 tax year) / Resident tax: 330,000 yen Working student deduction Student's own total income of 890,000 yen or less Special Deduction for Specific Relatives

This is a new system created in Reiwa 7. It changed the rules so that when a child of university age earns part-time income, the dependent deduction is no longer eliminated all at once but instead reduced gradually.

Being a student is not a requirement Spouses and family members working full-time in a family business are not eligible Applying for this requires submitting the "Employment Income Earner's Special Deduction Declaration for Specific Relatives" form 6. Claiming Dependents Who Live Overseas

This is the point that requires the most careful attention for foreign company employees in practice.

To claim a relative living overseas as a dependent for the dependent deduction, you must submit documents proving the family relationship and documents proving remittances. In addition, from the 2023 (Reiwa 5) tax year onward, overseas relatives aged 30 or older but under 70 are, in principle, no longer eligible.

Only the following three exceptions are recognized:

Those living overseas for study abroad Persons with disabilities Those who received remittances of 380,000 yen or more for living and education expenses during that year

If you are claiming your parents in your home country as dependents, **be sure to check their age and the total annual remittance amount.** In particular, if a parent is aged 30 or older but under 70, the deduction will not be recognized unless the remittance amount reaches 380,000 yen.

Instead of sending remittances all at once at the end of the year, make remittances in a way that leaves a clear record, and be sure to keep all related documents.

7. Year-End Tax Adjustment Schedule Timing Details October–November Deduction certificates arrive from insurance companies November–December Submit declaration forms and certificates to your employer December Settlement through the year-end tax adjustment (usually results in a refund) By the end of January the following year Your withholding tax statement (gensen choshuhyo) is issued Main Documents to Submit Dependent Deduction (Change) Declaration for Employment Income Earners Basic Deduction Declaration / Spouse Deduction Declaration / Special Deduction for Specific Relatives Declaration / Income Adjustment Deduction Declaration for Employment Income Earners (combined form) Insurance Premium Deduction Declaration for Employment Income Earners

On the basic deduction declaration form, you select and enter an amount (such as 620,000 yen or 1,040,000 yen) based on your estimated total income. Since the category you enter here is also linked to the determination of the spousal deduction, filling it in carelessly can lead to errors in the spousal deduction calculation as well.

8. When Company Employees Also Need to File a Tax Return, or When It's Advantageous To Do So When It Is Required Your salary income exceeds 20 million yen You have non-salary income exceeding 200,000 yen per year (→ Part 3: Freelancers and Side Jobs) You receive salary from two or more employers You left your job partway through the year and did not receive a year-end tax adjustment You are a non-permanent resident with taxable foreign-source income (→ Part 1: General Overview) When Filing Is Advantageous Medical expense deduction — for the portion exceeding 100,000 yen per year (or 5% of your income) Donation deduction — if you do not use the One-Stop Special Exception for furusato nozei (hometown tax donations) Housing loan deduction, first year — from the second year onward, this can be processed through the year-end tax adjustment You left your job partway through the year and did not find new employment afterward

You can file a refund claim anytime within 5 years starting from January 1 of the following year. There is no need to be fixed on the March 15 deadline. If you overlooked a deduction in the past, you can claim it retroactively.

9. Frequently Asked Questions

Q. If my company does the year-end tax adjustment, do I not need to do anything? A. In most cases that's true, but things like medical expense deductions, furusato nozei donations, and dependent deductions for relatives living overseas either cannot be processed through the year-end adjustment or require additional documents.

Q. What happens in the year I change jobs? A. If you submit the withholding tax statement from your previous employer to your new employer, the year-end adjustment will be done together, covering the whole year. If you did not find new employment within the year, you must file your own tax return.

Q. I have 150,000 yen in side income. A. If your non-salary income is 200,000 yen or less, you do not need to file an income tax return, but you do still need to file a resident tax return. Because the thresholds are different, this is a point where people often forget to file.

Q. I lost my withholding tax statement. A. Please ask your employer to reissue it. Attaching it to your tax return is no longer required, but you still need it to correctly transfer the figures onto your return.

What to Read Next Part 3: Freelancers and Side Jobs — Tax returns, expenses, blue-form (aoiro) filing, and consumption tax Part 4: Leaving and Returning to Japan — Tax administrators, the January 1 rule for resident tax, and the pension lump-sum withdrawal payment