RetireJapan

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!

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

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.

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.

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.