Japan Tax Office wants me to file Japanese tax return first before filing U.S. tax return

[booyah]

I am a US citizen and permanent resident in Japan for tax purposes. I am retired and 99% of my income (social security, pension, etc.) comes from the US. I have been filing my U.S. tax return first and then filing my Japanese tax return.Today the Japan tax office called me and said they want me to file my Japanese tax return first before filing my U.S. tax return. They want me to go into their office so they can explain/discuss it with me. Does anyone have any idea about what’s going on? I’m confused. I didn’t think it mattered which return I filed first.

[captainspoke]

Well, the filing deadline here is a month earlier than in the US (March 15th here, vs April 15th there), so that's the natural order of things--the deadline here comes first, so you file here first. Also, there are no extensions here (tho you can file an amended return later). And the tax code is simpler/easier, which goes hand in hand with getting a return filed here promptly.

Since you're a resident here (and a permanent tax resident at that), according to the treaty Japan has primary taxation rights. I take that as meaning that your filing here is the primary filing, and your filing with the US is subordinate (secondary).

Between those two things, what's the problem?

As you probably know, your US income streams are taxable here. By getting it done here first, you then know about and can claim taxes paid here against any US tax liability. (And sorry, altho something may be 'tax free' in the US, US tax rules do not apply to other countries, so if this is your concern, you'll just have to accept this reality.)

If you haven't filed your return here yet, when you talk to them accept that you are late and that there may be a penalty and interest charged. Be gracious and apologetic. Accept their conclusions about your situation. And next year, get it done well before March 15th.

[booyah]

Thank you for taking the time to reply to my post. I was under the assumption that it was my choice as to the order in which I filed my U.S. and Japanese tax returns. I have always filed my U.S. taxes first and then gone into the Japan Tax Office to file my Japanese taxes. No one in the tax office ever questioned this. Until now. Since I always file both returns well ahead of the deadlines, there is no need for an apology.

[captainspoke]

Of course you can file your US return first, if you do it early enough so that you can then file your return here before March 15th.

For context, this is your earlier post:

https://www.retirejapan.com/forum/viewt ... 148#p28148

[YouMeWeThem]

Surely they've got some issue with the contents of your Japanese filing rather than the order, right? Since they're specifically mentioning your US filing then perhaps it's something to do with foreign tax credits.

Keep us posted though, I'd be interested to hear what they have to say. It could be helpful for other US filers.

[booyah]

Thanks. I’ll let you know what I find out.

[booyah]

I just got back from the Tax Office. I was told that I must file my Japanese tax return first. I was also told that I cannot receive a tax credit for US taxes that I paid. My U.S. income is only social security, teacher pension from California, and bank interest. He repeated that based on my U.S. income, I cannot get a tax credit in Japan for the U.S. taxes that I paid. I had to sign a form to cancel my 2023 Japanese tax return (completed and filed before this year’s 3/15 deadline) and submit a new tax return for which I will have to pay a late filing fee.

[YouMeWeThem]

I was also told that I cannot receive a tax credit for US taxes that I paid.

captainspoke mentioned this above, but I have the same understanding that as Japan has primary taxation rights you should be paying taxes to Japan, and using foreign tax credits to alleviate taxation on the US side. So the issue was that you were trying to do the opposite?

[booyah]

Yes. I was told that I cannot file my US taxes first.

[Tkydon]

I just got back from the Tax Office. I was told that I must file my Japanese tax return first. I was also told that I cannot receive a tax credit for US taxes that I paid. My U.S. income is only social security, teacher pension from California, and bank interest. He repeated that based on my U.S. income, I cannot get a tax credit in Japan for the U.S. taxes that I paid. I had to sign a form to cancel my 2023 Japanese tax return (completed and filed before this year’s 3/15 deadline) and submit a new tax return for which I will have to pay a late filing fee.

From the Japanese Tax Perspective:

Under the Japan US Tax Treaty:
https://www.irs.gov/businesses/internat ... -documents
https://www.mof.go.jp/tax_policy/summar ... _ST_en.pdf

1. US Social Security - only taxable in Japan

"ARTICLE 17
1. Subject to the provisions of paragraph 2 of Article 18, pensions and other similar remuneration, including social security payments, beneficially owned by a resident of a Contracting State shall be taxable only in that Contracting State."

Further, US Social Security qualifies for the Public Pension Tax Deduction, which gives you about an additional Y1+M of Tax Deduction on top of other allowances and deductions.

Best reference is here - Page 8 (page 12 of the PDF)
Calculating the Public Pension Plan Deduction (Calculation Table)
https://www.tax.metro.tokyo.lg.jp/book/ ... k2023e.pdf

Also here - Bottom of Page 22
https://www.nta.go.jp/taxes/shiraberu/s ... df/050.pdf


2. Teacher Pension from California - If this is a Government Paid Pension for service to the California State Government, paid by the State or School District - Only Taxable in the US, if Booyah is not a Japanese Citizen.

"ARTICLE 18
...
2. (a) Any pension and other similar remuneration paid by, or out of funds to which contributions are made by, a Contracting State or a political subdivision or local authority thereof to an individual in respect of services rendered to that Contracting State or a political subdivision or local authority thereof, other than payments made by the United States under provisions of the social security or similar legislation, shall be taxable only in that Contracting State.
(b) However, such pension and other similar remuneration shall be taxable only in the other Contracting State if the individual is a resident of, and a national of, that other Contracting State."


3. Bank interest - only taxable in Japan

"ARTICLE 11
1. Interest arising in a Contracting State and beneficially owned by a resident of the other Contracting State may be taxed only in that other Contracting State."


Therefore, Foreign Tax Credits are not applicable.

However, if you are still Non-Permanent Resident for Tax Purposes, having been in Japan for less than 5 years in the last 10 years, only funds remitted to Japan from the Social Security and Bank Interest Income are taxable in Japan. Social Security and Bank Interest Income would be considered to have been remitted to Japan before the Teacher's Pension.