There are three main categories that get deducted from the paycheck of the average worker in Japan:
- [National] Income tax (所得税)
- Local [Income] Tax（住民税）
- Social Insurance (Including Health insurance and other types of insurance)（社会保険）
We’ll call the sum of these three categories “Tax” in a broad sense, since they all get paid to the government in one way or another.
If you have a family where only one person works, they can claim other people sigh as a spouse or children as dependents. This can both lower and raise the overall tax burden. Basically speaking, claiming a person as a dependent will lower tax burden of the primary earner, while raising the fees for social insurance.
Basically, National Income tax ranges from 5% to 45%, depending on your level of income and deductions. Many people make the mistake of thinking that national income tax is charged against their salary, but it is actually charged against their taxable income (課税所得), which can be reduced through various means.
Local taxes are normally fixed at 10% of taxable income, but this can vary slightly in some locations.
Simply Speaking: Taxable Income = Gross Income (Salary) – Deductions.
This means if you want to lower your taxes, you need to lower your taxable income.
Of course you could lower your taxable income (and taxes) by lower your salary, but the amount of money you keep would also be lower!
The other option is to reduce your taxable income by increasing the amount of deductions. If you do it this way, you get to keep more of your income for yourself.
Deductions
- The most basic Deduction is the “basic deduction” (基礎控除) – in principle, this available to everyone. At present, this is 48 man yen – but the rule is scheduled to change to 58 man yen in December of 2025. The amount will likely change.
- If you earn a salary at a company, then you also get the “Salaryman Deduction” (給与所得控除) – Which is meant to cover minor expenses of working at a company such as buying suits, shoes, etc., rather than itemizing them as you might do if you ran your own business. This deduction is 65 man yen.
- Souse Deduction (配偶者控除) – If you have a spouse that has a very low pay (less than 45 man yen per year) or doesn’t work at all, then this deduction can be applied.
- Special Spouse Deduction （配偶者特別控除）- For those with spouses who earn less than 133 man/year.
- Family Deduction （扶養控除）- For those with dependent parents or children who earn less than 48 man yen. (The exact amount of this deduction depends on the situation of the family member. More information cab be found here).
- Disability Deduction (障害者控除) – If the earner or a dependent family member is a disabled person, then this deduction can be applied.
- Survivor Deduction（寡婦控除）- Currently applicable for surviving wives in situations where the husband has died. This is usually 27 man yen, but there is a also a special deduction of 35 man in some cases. You can find more details here. This looks set to be changed in the near future for gender equality.
- Single Parent Deduction （ひとり親控除）- This deduction is for single parents. Both males and females can make us of this deduction)
- Working Student Deduction (働労学生控除) – For working students with low income.
- Social Insurance Deduction （社会保険料控除）- Basically for people who are paying for company sponsored health insurance.
- Small Company Pension Deduction （小規模企業共済等掛金控除）- This is for those with an iDeco account. Unlike other deductions, this one can only be used by the earner themselves.
- Life Insurance Premium Deduction （生命保険料控除）- This has a maximum of 4 man yen per contract for a combined maximum total of 12 man yen / year. It’s important to note that this doesn’t mean your taxes could be reduced by up to 12 man yen per year, as they can be reduced by at most 12 man x your tax rate. More information can be found here.
- Earthquake Insurance （地震保険料控除）- As the name states, but most earthquake insurance isn’t easy to pay out, so this may not be a very good deal. More info here.
- Donation Deduction （寄附金控除）- For people who have donated. See here for hometown tax, and here for other donations.
- Medical Fee Deduction （医療費控除） – For those who have paid a substantial amount of medical fees during the year. more details can be found here.
- Disaster Deduction （雑損控除）- For those who have experienced a natural disaster or other major loss. More information can be found here.
- Housing Loan Deduction （住宅ローン控除）- This can be used to claim the interest on housing loans, etc. – but given that if you choose a home with poor resale value your loss will be major compared to the small amount of this deduction it deserves careful thought. (Especially any new homes will almost certainly be sold at a loss eventually).
Basically all of these deductions are designed to lower the tax burden for people who have tough situations or have already paid a lot elsewhere.
There are two main ways that taxes can be filed for most people.
- Year End Adjustment (年末調整) – This is where the company files your taxes for you at the end of the year based on the information they have.
- Tax Return （確定申告）- This is when you fill out a tax return and send it to the tax agency on your own.
For most people working at a company as an employee, it isn’t necessary to file a tax return.
Situations where you need to file a return include:
- When you have multiple sources of income.
- When you have income over 2000 man yen per year
- When you want to claim deductions that aren’t within the scope of the year end adjustment.
So what kind of things do you need to claim yourself?
- Hometown tax – This is handled as a donation. (Though you can use the one stop site instead of filing taxes if you are donating to 3 or fewer locations).
- Medical Expense Deductions – You can claim medical expenses you had to pay over 10 man yen in the year. You can apply for expenses incurred up to 5 years ago. This always requires filing a tax return.
- Spouse & Family Deductions – This can be applied when there is a dependent spouse, elderly parents, or young children, etc. Note that the key word here is dependent. If the person is working and earning a significant amount, then it may be better not to claim them as a dependent. The intent of this deduction is to allow for at least a minimal level of income per person. Note that this deduction is also scheduled for a major revision in December of 2025. Even though this is something you must apply for, you can do it via your company instead of filing a tax return.
While many of these deductions only apply in special cases, some apply to nearly everyone. In addition to that, almost everyone can use the hometown tax system. You can also use the 401k at your company if they have one, or iDeco if they don’t have one. The more you increase deductions, the lower your taxable income, and therefore taxes will be – This will leave more money in your paycheck, or at least your retirement account.
Who benefits from Spouse & Family Deductions?
First, the people who will lose out if they use these deductions are those who don’t use the deductions to their fullest, those who those who stay registered as dependents when they shouldn’t, and those who earn too much money for it to be worth while.
People will win out are those who will use the deductions they can, those who will make money even if they are not dependents, and those who will pass a minimum level of income.
Obviously, you should use any deductions that are available to you. If you are the breadwinner and you have a dependent family member who lives with you and earns a low income, then you should claim them as a dependent. This normally means you need to fill out a form so that the HR department at your company knows the situation and will adjust payroll accordingly. If for some reason you don’t want to share this information with your company, then you will need to file a tax return with this information.
It’s important to remember that the purpose of spouse & family deductions is to maintain an absolute minimum standard of living, not to enrich people who don’t work. Therefore, it does not make sense to try to limit your income to keep your status as a dependent. If you earn too much to be counted as a dependent, then you are earning enough to file for taxes on your own and receive your own deductions. The idea of “If my wife earns more than 103 man per year then I won’t be able to keep the spouse deduction” isn’t wrong, but the conclusion that this is a bad thing is just not right. The husband will pay more taxes in this case, but the wife will pay less taxes. Even though there is a grey area where the total net income will be less from working more hours, this grey area is constantly changing, well past 103 man, and anyway will quickly be passed through by most people (more details below).
Therefore, the correct way of thinking is for everyone in the family to earn as much as possible – but also use whatever deductions make sense given your current situation. If a family member you could claim as a dependent starts earning more, then even if they are removed as a dependent, and both taxes and social insurance increase – the total net income of the family will generally increase – and isn’t that a good thing?
One other thing that bears mentioning is that the tax rate only applies to the amount above each level. For example, the highest tax rate is 45%, but not only does that 45% not apply to the person’s gross income – it also doesn’t even apply to their entire taxable income. The 45% only applies to the income after 4000 man yen. This means there is no sense in fearing earning enough to put yourself into the next tax bracket. Entering the next tax bracket only means income above that amount will be taxed at a higher rate. You will still always end up with more in your pocket if you earn more, even if the tax rate and the tax paid increases.
While the above is 100% true for a primary earner, there is indeed a grey zone for spouses where the total net income can actually go down from working more. This is basically the area between 130 man to 150 man per year for most spouses. This “wall” will move each year as minor changes to the law take place, so rather than trying to manage your income to stay below a certain limit, it makes more sense to earn as much as you can, and then apply whatever deductions you can. In short, if you can earn 130 man, you can probably earn 150 man and be out of the valley anyway.
If your only goal in life is to avoid paying taxes, then you will severely limit your chances of income for your and your family.
The last thing to mention is that adding someone as your dependent for taxes will lower your tax bill and save you money, but adding them as your dependent for health insurance will raise your insurance premiums and cost your money. Because of this, you may want to go to HR and ask them about the total combined effects of any changes you are considering before adding or removing a dependent.
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