beanhead wrote: ↑Mon Apr 11, 2022 3:01 am
FukuokaJen wrote: ↑Mon Apr 11, 2022 12:57 am
I was telling a friend that the taishokukin amount was pretty large--my university mentioned a figure that I calculated would be close to $20,000 when I asked how much the taishokukin would be when my husband and I were just purchasing a house. It surprised me because I've only been in my position for 5 years and will (presumably) be forced to retire in 11 so that doesn't seem like that long of a time to be working. My friend said well that's going to mean paying a lot of taxes on that! So I'm wondering how Japan (and the US--I am an American citizen) handles that big chunk of money? Presumably they don't tax you at the normal rate? Also, did I misunderstand--is the taishokukin really this big? And one last question . . . I now have a mortgage until I'm 80 years old because I bought this house rather late in the game. Would it be better to pay the house off when (if) I get such a big taishokukin? Or would it be better to just invest it at the time and continue paying my mortgage?
So let me state these as questions:
1) How do taxes work in Japan for the taishokukin? I have seen some posts here that say it will be very small (3-5%) and others that say it will be nearer 20% (in a different forum where someone discussed taishokukin).
2) The year I get a taishokukin am I going to exceed my yearly threshold for excluding money from the US and thus have to pay a lot of taxes? (I see someone here said their friend just became a Japanese citizen instead of paying the US!)
3) How big are taishokukin normally? (does anyone want to tell us, ballpark, how much they got?)
4) Would it be better to pay off a mortgage with taishokukin or invest it and keep paying the monthly mortgage?
1) Taxes for taishokukin are small
See this thread:
viewtopic.php?t=1472
2) US tax stuff...sorry, can't help
3) Average for the 40-year salaryman at a big company
used to be almost 30M yen.
I read somewhere that it is down to less than 20M (17M maybe), for those who put in their 40 years. Of course, many large Japanese companies have switched to DC plans from taishokukin anyway.
4)No-one can answer this but you. Everyone has a different appetite for risk. Most US-based Bogleheads cherish being mortgage-free. Many of us here have mortgages of around 1%, so are comfortable keeping this debt and investing other money rather than paying off the loan early. This has been discussed on the forum before, but as I said, you have to consider what will make you more content with your financial situation.
To reiterate what I wrote in the other thread,
Post-employment payments are split into 3 groups for Japan Tax purposes
1. Retirement Allowance = Lump Sum = Taishokukin 退職金
This has a special Tax treatment.
This is NOT lumped in with other income, and is treated completely separately.
The Only Allowance against Taishokukin 退職金 is the Special Allowance equal to 400,000 per year for the first 20 years of service (or part thereof) and 700,000 per year for years of service over 20 years (or part thereof)
(You can basically use this deduction every 4 years or so)
e.g. 11 years of service => Special Allowance = 11 x 400,000 = 4,400,000 Tax Free
The remaining amount after deduction of the Special Allowance is then Divided by Two = Taxable Amount
The Taxable amount is then taxed according to the Standard Aggregate Marginal Tax Rates.
Income Tax Rates 総所得金額の合計、復興特別所得税、住民税の税率
Band Marginal Tax rate (%) National - Reconstruction - Residents' Taxes = Total
Under 1,949,000 5% 0.105% 10% = 15.105%
1,950,000 3,299,000 10% 0.21% 10% = 20.21%
3,300,000 6,949,000 20% 0.42% 10% = 30.42%
6,950,000 8,999,000 23% 0.483% 10% = 33.483%
9,000,000 17,999,000 33% 0.693% 10% = 43.693%
18,000,000 39,999,000 40% 0.84% 10% = 50.84%
Over 40,000,000 45% 0.945% 10% = 55.945%
That is actually the Equivalent of Total Taishokukin 退職金 minus Special Allowance taxed at
Band Marginal Tax rate (%) National - Reconstruction - Residents' Taxes = Total
3,900,000 6,599,000 5% 0.105% 5% = 10.105%
6,600,000 13,899,000 10% 0.21% 5% = 15.21%
13,900,000 17,999,000 11.5% 0.242% 5% = 16.742%
18,000,000 35,999,000 16.5% 0.345% 5% = 21.845%
36,000,000 79,999,000 20% 0.42% 5% = 25.42% Y8,984,800
Over 80,000,000 22.5% 0.4725% 5% = 27.9725%
(the amount is halved and taxed at the standard marginal bands, which is the equivalent of twice the width of the band at half the band tax rates as shown above)
2. Pension Income - Such as Japan National Pensions 国民年金、国民年金基金、Overseas Pensions, etc..
Pension income is aggregated with other Aggregate Income, and taxed accordingly. You get to apply all Allowances and Deductions, Furusato Nozei, Medical Cost Deductions, and the additional Public Pension Deduction, the calculation of which you can see in this document
https://www.tax.metro.tokyo.lg.jp/book/ ... k2021e.pdf
Page 8 - Calculating the Public Pension Plan Deduction (Calculation Table)
Individuals under the age of 65 and Individuals aged 65 and up
The remaining Aggregate Taxable Income is then taxed according to the Standand Aggregate Marginal Tax Rates.
Income Tax Rates 総所得金額の合計、復興特別所得税、住民税の税率
Band Marginal Tax rate (%) National - Reconstruction - Residents' Taxes = Total
Under 1,949,000 5% 0.105% 10% = 15.105%
1,950,000 3,299,000 10% 0.21% 10% = 20.21%
3,300,000 6,949,000 20% 0.42% 10% = 30.42%
6,950,000 8,999,000 23% 0.483% 10% = 33.483%
9,000,000 17,999,000 33% 0.693% 10% = 43.693%
18,000,000 39,999,000 40% 0.84% 10% = 50.84%
Over 40,000,000 45% 0.945% 10% = 55.945%
3. Pensions and Annuities Other Than 2. Above
Annuities provided by Insurance Companies, and other Pension Income that does not qualify for the additional Public Pension Deduction, are taxed the same as 2. above but without the additional Public Pension Deduction.
You may have a combination of 2. and 3. above, so may be entitled to the additional Public Pension Deduction on part of your total Pension Income. See
Page 8 - Calculating the Public Pension Plan Deduction (Calculation Table)
Individuals under the age of 65 and Individuals aged 65 and up
FukuokaJen wrote: ↑Mon Apr 11, 2022 12:57 am
So let me state these as questions:
1) How do taxes work in Japan for the taishokukin? I have seen some posts here that say it will be very small (3-5%) and others that say it will be nearer 20% (in a different forum where someone discussed taishokukin).
2) The year I get a taishokukin am I going to exceed my yearly threshold for excluding money from the US and thus have to pay a lot of taxes? (I see someone here said their friend just became a Japanese citizen instead of paying the US!)
3) How big are taishokukin normally? (does anyone want to tell us, ballpark, how much they got?)
4) Would it be better to pay off a mortgage with taishokukin or invest it and keep paying the monthly mortgage?
1) See the Tables above.
After Special Deduction of 400,000 per year (<20 year) and 700,000 per year (>20 years)
Band Marginal Tax rate (%) National - Reconstruction - Residents' Taxes = Total
Basically, first 1,949,000 5% 0.105% 10% = 15.105%
Next 1,349,000 10% 0.21% 10% = 20.21%
and so on...
2) You can use the Taxes paid in Japan as the Foreign Tax Credit against US Taxes.
3) Case by case...
4) No. Other than for piece of mind, NO!
Pay off all High Interest Loans...
If you pay off your mortgage, that is the equivalent of a return on your money equal to the Interest Rate you are paying on your Mortgage, AND if you were getting the Morgage Tax Deduction, 1% of the outstanding balance of the Mortgage, you would lose that too...
Much better to invest the money for 5%+ annual return and pay the payment and interest out of the investment income/gain, and at the end, you will still have the money in your investment account.
Your Mortgage is covered by Life Insurance, so if you die, the Mortgage will be completely paid off. Your Heirs will receive the property free and clear AND the amount in your investment account...
See the guys from Everything Money explain it:
https://www.youtube.com/watch?v=w3z0vVEVT_s