TAX CALCULATION EXAMPLE: First Year in Japan

[shonanscotto]

Hi,

New member and first post here. Any feedback would be greatly appreciated.

QUESTION: Does the example individual get calculated at 20.42 (20% x 2.1% restoration tax (2013-2037)) because it is their first year in Japan? Or is this a myth and they should be calculated as per the general withholding tax rates?

I’m making a spreadsheet for some foreign teachers at work and others that have asked me about personal finance. Knowing that, I need to make a tax calculation example for them. Could anyone keen here please go over my question, numbers and methods below:

Example Individual: 254,000 gross monthly salary with 16,000 transportation allowance. Single no dependents and first year in Japan (arrived on Jan 2). Fresh off the boat so to speak.

If yes, I believe that they should be calculated at 20.42%, then my calculation looks like this:

254,000 x 12 months x the flat rate of 20.42% (tax and insurance liabilities included) for first-timers in Japan = 622,402 calculated for the year or 51,867 a month.

MONTHLY TOTAL TAX & INSURANCE LIABILITY = 51,867


If no, then I believe that they should be calculated as follows and my calculation would look like this:

254,000 x 12 months x the withholding tax rate plus other insurance liabilities = 622,402 calculated for the year or 54,077 a month.


This approximately breaks down into:

254,000 x 12 months = 3,048,000
Withholding tax calculation: 3,048,000 x 10% Less 97,500 = 207,300 for the year.
207,300 / 12 months = 17,275

Income Withholding Tax (Excluding Restoration Tax) = 17,275
Restoration Tax @ 2.1% (2013 -2037) = 17,275 x 0.021 = 363
Health Insurance 254,000 @ 4.955% = 12,586
Pension Insurance 254,000 @ 9.091% = 23,091
Employment Insurance 254,000 @ 0.3% = 762

MONTHLY TOTAL TAX & INSURANCE LIABILITY = 54,077


OTHER:

Non-First Year Residents: Income range Japan income tax (Withholding Tax) rate (%) 2017

Taxable Income Tax Rate
less than 1.95 million yen 5% of taxable income
1.95 to 3.3 million yen 10% of taxable income minus 97,500 yen
3.3 to 6.95 million yen 20% of taxable income minus 427,500 yen
6.95 to 9 million yen 23% of taxable income minus 636,000 yen
9 to 18 million yen 33% of taxable income minus 1,536,000 yen
18 to 40 million yen 40% of taxable income minus 2,796,000 yen
more than 40 million yen 45% of taxable income minus 4,796,000 yen

Calculation Sources:
#1. http://www.mof.go.jp/english/tax_policy ... x.html#a02
#2. https://www.jetro.go.jp/usa/overview-of ... ystem.html
#3. http://www.htm.co.jp/calculators-monthl ... -japan.htm
#4. https://www.japan-guide.com/e/e2206.html


Other Sources:
#1. https://transferwise.com/us/blog/income-tax-in-japan
#2. http://japantaxcalculator.com/


Thank you for your time and feedback.

[RetireJapan]

Hi Scott

Welcome to the forum!

Heading out to a jiu-jitsu competition now, but just a couple of quick things:

1. I think the 20.some% tax is on capital gains and dividends -not sure it would apply to salaried workers
2. income tax is applied on taxable income, ie after allowances and deductions for dependents etc.

Very much not a tax expert though

[ricardo]

I admire your attempt to simplify and generalise something which is quite complex and inevitably varies depending on individual circumstances.

The key point is that income tax is calculated annually, taking into account all sorts of deductions (e.g. life insurance, earthquake insurance) which you haven’t included.

And you need to think about how to include the local Residents Tax, which varies by prefecture and is levied the year AFTER the income is earned. Health Insuranc, potentially close to zero in year one, is also based on the previous year’s income. A shock for many as they start their second year...

Whatever general guidance you produce will usually not apply to any one individual because of their circumstances.