"Taishokin" [retirement settlement] and American Taxes

[Clueless]

Does anyone have experience/knowledge of how taishokin [retirement payout/settlement] is taxed for Americans? How is this tax calcuated? Is there any way of getting around this? Any information would be greatly appreciated. Thanks!

[RetireJapan]

Not particularly helpful, but I know someone who naturalised and gave up their US citizenship specifically to avoid US taxes on their retirement bonus

[TokyoWart]

The US doesn't give any special tax treatment to lump-sum payments like the payment many retiring workers get in Japan. You would use regular earned income tax rates to calculate the applicable tax but also get to apply FEIE/FTC and the standard deduction.

[TJKansai]

A friend who retired said he had a lot of prior year rollover credits (I think from 1116) which helped to limit his Taishokin tax hit on the US side. Then again, he has a Japanese and an American accountant. This is something I really need to figure out, with retirement coming in a few years.

[Tkydon]

In Japan, the Taishokukin is subject to very beneficial taxation model.

Total Taishokukin

minus

No other Allowances or Credits allowed except the Retirement Income Deduction
For less than 20 Years Service
n No. ofYears of Sevice x Y400,000
or
For more than 20 Years Service
Y8,000,000 + n-20 No. of Years of Sevice over 20 Years x Y700,000

divided by 2

Net Taxable Income

taxed at standard Marginal Income Tax Rates - National Income Tax

Upto 1,950k --- 5%
1,950k to 3,300k --- 10%
3,300k to 6,950k --- 20%
6,950k to 9M --- 23%
9M to 18M --- 30%
18M to 40M --- 40%
Over 40M --- 45%

and

Special Income Tax for Reconstruction
2.1% of the Tax Amount

and

10% Residential Taxes (6% Prefecture, 4% Municipality)

This should all be withheld at source. If so, you do not need to file a Tax Return for this.


I understand you can then take the total of all the taxes above (National, Recontsruction and Resident Taxes), and use that value for a Foreign Tax Credit against you US Tax Liability.