What’s Year-end Adjustment(年末調整)in Japan?


What’s Year-end Adjustment(年末調整)in Japan?

In December, companies in Japan are busy dealing with Year-end Adjustment(年末調整). But what is it like? On this page, you’ll find what the Year-end Adjustment is about.


Adjustment of individual income tax

The amount of income tax is determined based on your income for the calendar year. Some may think it is a burden to pay a full amount of the tax at a time. And the government wants to collect the tax as early as possible. So they adopted the withholding tax system, where companies deduct tax income from employees’ salary every month and pay it to the tax office.

The tax withheld every month is temporary. An amount of withheld income tax every month is determined based on your salary and numbers of dependents. You need to notify your company of those situations by means of paper called “Application for (change in) Exemption for Dependents of Employment Income Earner”.(GET IT HERE) Your company decides how much they deduct as a withholding tax from your salary according to this paper.

And the National Tax Agency provides the tax amount table that shows the amount companies deduct from salary. It is written only in Japanese. (GET IT HERE)

At the year end, withheld income tax every month is adjusted to the fixed amount.

The fixed amount is calculated based on your annual salary, numbers of dependents, etc. This procedure is called Year-end Adjustment.

Basically, the tax amount withheld every month is larger than the fixed amount. So you will get refunded. Though the way you get the refund is up to a company, its common way is to pay the refund along with salary in December. That’s why your salary is higher in December.

Normally, you don’t need to file a final tax return because the procedures are done by your company through this Year-end Adjustment. But if you earn 200,000 JPY or more income from other than your company, you are obliged to file a final tax return.

How much tax is withheld from your salary?

Let’s take a look at withholding tax from your salary on the assumptions that…

  • 340,000 JPY salary every month
  • You take care of your wife
  • Social insurance fee is 40,000 JPY every month
  • The fixed amount of the tax is 70,000 JPY

The amount of withholding tax is determined according to the Tax Amount Table. 

In this case, the amount of salary minus social insurance fee is 300,000 JPY and a number of dependents is 1. 

According to given situations, the amount of withholding tax would be 6,740 JPY this month. This calculation is done every month which means the tax amount varies month to month.

In December, your company calculates the fixed amount of income tax. Let’s say it would be 70,000 JPY. Sum of withheld tax every month is 80,880 JPY (6,740 JPY ×12 months).

A part of withheld tax that exceeds the fixed amount (10,880 JPY) is an over-payment. So you get refunded along with salary in December.

Having any concerns like these with your accountant?

Your tax accountant…

  • changes every year
  • suggests no tax-saving measures
  • doesn’t give you financial statements in a timely manner
  • doesn’t explain the contents of the statements
  • is reluctant to use the cloud software
  • rarely shows up to your office
  • is always late to answer your questions
  • is elderly and you’re worried about the near future

Lack of communication with tax accountants can cause incorrect accounting processing due to the mess of the contents of the bookkeeping.

As a result, it increases the risk of additional taxation of up to 40% through a tax audit which is conducted once every 3 to 5 years.

To prevent from paying additional taxes, it is important to share accounting processing and the business environment with tax accountants on a daily basis and to take measures to address additional taxation risks at an early stage.

We, Masa Tax Consulting, not only consult on accounting contents but also provide tax audit preparing measures and proposals for tax-saving measures that are optimal for customers as the most casual/friendly tax accountant in Japan.

We now offer a free initial consultation and a first-month-free policy.

We do not force you to make any contract, so please feel free to contact us.

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Masashi Iwasawa

Certified Accountant / Business Advisor / Taxation Consultant based in Tokyo.
Lover of traveling, climbing mountains, reading books, learning new languages, and gym.