Income Tax Bracket Calculation Question - Flat or Graduated %

[Kemp]

Good morning,

Sigh...tax season. I have to file an and of year adjustment. When I check Japanese vs English Calculators, I see two different 'instructions' for calculating income tax %. The Japanese govt tax site uses example with a flat rate ranging from 5%-40% with deduction.

https://www.nta.go.jp/taxes/shiraberu/t ... u/2260.htm

For example, if the "taxable income amount" is 7,000,000 yen, the required tax amount will be as follows.
7,000,000 yen x 0.23 --636,000 yen = 974,000 yen.

Western sites (and what I thought was correct) use a graduated calculation, adding up the deductions as your salary moves into higher tax bracket. Any insight on which is correct would be greatly appreciated. I really don't want to go to the ward office this week. Thank you. Jennifer

[Tkydon]

The End-Of-Year Adjustment (Nenmatsu Chosei 年末調整) should have been filed with your Employer in November/December, if you only had Employment Income and some simple deductions.

If you missed the End-Of-Year Adjustment 年末調整, or if you had Income other than Employment Income, or if you had some more complicated deductions, such as first year of Home Loan Deduction, Medical Expense Deduction, or other, then you have to file a Full Tax Return (Kakutei Shinkoku 確定申告).

You should not go to the Ward Office. This is not the place to file the Kakutei Shinkoku.

You have to go to the National Tax Office (Zeimusho 税務署) for your district.

You can find the location of the Tax Office for your district here
https://www.nta.go.jp/about/organization/index.htm

Due to Covid, you have to make an appointment using their LINE Account: 国税庁


Yes, you are correct. It is Graduated for Aggregate Taxation Method Income
The NTA site you referenced just does this in a funky way to make it easier to calculate, but you will see the final result is the same as below... but they do not include the Reconstruction Tax and Residents' Taxes in their example. The full calculation is like this.

You take your Gross Income
You deduct all of your Allowances and Deductions (Personal, Spouse, Dependent Allowances, Medical, Furusato Deductions, etc.)
This leaves your Taxable Salary

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%

(The Reconstruction Tax Rate is calculated as 0.21% of the National Tax)

So, say your Taxable Salary after all Allowances and Deductions was 10,000,000

Then, the first 1,950,000 would be taxed at 5% + 0.105% + 10% =
5% + 0.105% = Y97,705 National & Reconstruction Taxes at Kakutei Shinkoku
&
10% = Y195,000 Residents' Taxes in the next year's Juminzei...

The next 3,300,000 - 1,950,000 = 1,350,000 would be taxed at 10% + 0.21% + 10% = Y135,284 & Y135,000 for the Band

The next 6,950,000 - 3,300,000 = 3,650,000 would be taxed at 20% + 0.42% + 10% = Y731,553 & Y365,000 for the Band

The next 9,000,000 - 6,950,000 = 2,050,000 would be taxed at 23% + 0.483% + 10% = Y472,490 & Y205,000 for the Band

And finally, 10,000,000 - 9,000,000 = 1,000,000 would be taxed at 33% + 0.693% + 10% = Y330,693 & Y100,000 for the remainder

For Juminzei, there is also the Per Capital Levy (currently Y5,000 per person)


Add these all together for the final Aggregate Tax Bills.


If you have Dividend Income, it is probably better to use the Separate Taxation Method for the Dividends.
Capital Gains also uses the Separate Taxation Method. Form B Page 3 - 第三表

The Tax Rates are 15% National, 0.315% Reconstruction, and 5% Residents' Taxes.

[Kemp]

Thank you, Tykdon! I greatly appreciate you taking time to share the example. I do plan to go to the Tax office but wanted to calculate first. I did follow your example and the amount is close to the company withholding so I think it is correct. Why would the govt tax page post that simplified example which is incorrect and confusing?

For example, if the "taxable income amount" is 7,000,000 yen, the required tax amount will be as follows.
7,000,000 yen x 0.23 --636,000 yen = 974,000 yen.

[Tkydon]

I added some points above. Please reread.

Taking the example you gave:

For example, if the "taxable income amount" is 7,000,000 yen, the required tax amount will be as follows.
7,000,000 yen x 0.23 - 636,000 yen = 974,000 yen.

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%

As I said above the first 1,950,000 is taxed at 5%
But the Marginal Tax Rate of 7,000,000 is 23%
Clearly the 1,950,000 band is full.
If you calculate that 5% as the 23% minus 18%
So you calculate the negative 18% as a Negative Allowance
1,950,000 x -18% = -Y351,000

The next Band is also full
3,300,000 - 1,950,000 = 1,350,000 would be taxed at 10%
But the Marginal Tax Rate of 7,000,000 is 23%
If you calculate that 10% as the 23% minus 13%
So you calculate the negative 13% as a Negative Allowance
1,350,000 x -13% = -Y175,500

The next Band is also full
6,950,000 - 3,300,000 = 3,650,000 would be taxed at 20%
But the Marginal Tax Rate of 7,000,000 is 23%
If you calculate that 20% as the 23% minus 3%
So you calculate the negative 3% as a Negative Allowance
3,650,000 x -3% = -Y109,500

The next Band
7,000,000 - 6,950,000 = 50,000 would be taxed at the full 23%, so no more negative allowance...

If you add all these Negative Allowances together it equals the -Y351,000 + -Y175,500 + -Y109,500 = Minus 636,000 Yen in the calculation in the example, So the calculation works out to be correct. The Negative Allowance for each Band represents the sum of the negative allowances as calculated above for that band.

7,000,000 yen x 0.23 Minus 636,000 yen = 974,000 yen.

You then have to add the Reconstruction Tax

974,000 yen x 0.21% = 2,045 yen

Total Tax = 974,000 + 2,045 = 976,045 yen National and Reconstruction Taxes
= 974,000 yen x 100.21% = 976,045 yen National and Reconstruction Taxes



If the Taxable Income was 10,000,000, then

As I said above the first 1,950,000 is taxed at 5%
But the Marginal Tax Rate of 10,000,000 is 33%
Clearly the 1,950,000 band is full.
So this time you calculate that 5% as the 33% minus 28%
So you calculate the negative 28% as a Negative Allowance
1,950,000 x -28% = -Y546,000

and so on...

[Kemp]

Tkydon, thank you! I spent time today and was able to navigate e-Tax and now it all makes much more sense. It is filed and I didn't have to go to an office or submit by mail. I sincerely appreciate you taking the time to reply. Enjoy your evening. Jennifer

[Tkydon]

Welcome. I sent you a PM, but I just realised you may not yet be able to receive or send PMs. By any chance, did you receive it?

[TJKansai]

Another amazing post by Tkydon!

Ever think of writing some tax software (in English)? Bet you'd have an appreciative (if small) customer base.