Let’s Talk Japanese Residence Tax
Edit History:
March 18, 2024: I added a link to the Japan Tax Calculator, a useful (unofficial) tool for estimating one’s tax obligations in Japan.
Let’s Talk Japanese Residence Tax
When you’re a JET, you’re responsible for paying taxes. I know, I know, we don’t enjoy paying taxes in our home countries. However, it’s one of the many ways we as JETs contribute to Japanese society. My friends and I were hit with our first residence tax bills recently, and we had questions. This post is for my friends and fellow JETs who stumble upon this. I’m going to explain what it is, how it’s calculated, how it’s paid, and how to set up salary deductions. If your contracting organization does not already deduct this for you.
What is Japanese Residence Tax?
Residence Tax / Inhabitant Tax, or 住民税 (Jūminzei) is a tax paid to both the Prefectural Government and your municipality for essential services. It is calculated based on your prior year taxable income and billed in June of the present year. To my fellow Americans, this is equivalent to State and Local Taxes (SALT), which are usually paid by our employers.
However, Residence Tax is your responsibility and, more likely than not, is not automatically deducted from your salary. If that’s the case, the municipality you lived in on January 1st of the present year will mail you your tax bill, along with a booklet explaining how your tax was calculated, and four payment slips. These payment slips are due June 30th, August 31st, October 31st, and January 31st of the following year, but you can pay at any time before the due date. The easiest way to pay Residence Tax is at your nearest convenience store. You can also pay for it at your local bank, or your city hall.
If you did not receive a residence tax bill in the mail, your school might automatically deduct it from your salary. Once June arrives, check your payslip and see if there’s a number under 住民税 (Jūminzei). If not, you may come from a country which has a tax treaty with Japan. Japanese residents from The Philippines may not owe residence tax for the time being. The U.S. and Japan used to have a tax treaty which exempted U.S. ALTs from both income and residence tax. As of August 30, 2019, this is no longer the case.
Now with that out of the way, let’s talk about how it’s calculated.
How is Residence Tax Calculated?
I will be talking about residence taxes from the perspective of a single taxpayer living alone. If you live with a significant other, and/or have kids, your tax situation will be different.
Each municipality has different ways of calculating residence tax, so I will provide the most bare-bones explanation possible. Please check your municipality’s website, or your bill, for further information on how it’s calculated.
Residence tax equals your income tax rate plus your municipality’s “per-capita rate.” Your income rate is roughly equal to 10% of your taxable income minus further deductions. The town receives 6% of your taxable income while the prefecture receives 4%. Each municipality imposes a universal “per-capita” rate which varies depending on where you live. For my municipality, the “per-capita” rate equals 3,500 yen. Therefore, residence tax equals approximately 10% of your taxable income when including the per-capita rate.
For my municipality, my residence tax was calculated using my total income after deductions. My gross income (total I made) for the 2022 tax year was 3.46 million yen, and my taxable income (gross minus deductions) was about 2.342 million yen. My town deducted my social insurance (health insurance plus pension) payments, as well as applied an additional deduction to further reduce my taxable income to 1.379 million yen. From there, my residence tax was calculated, resulting in a bill of 140,800 yen for my 2022 residence tax bill.
If you want to get an (unofficial) idea of how much taxes are taken out of your payslips, check out the Japan Tax Calculator. This tool will give you estimates for insurance + pension obligations, income tax, and resident tax.
What does this mean?
This means that about 4% of my GROSS income (3.46 million yen) was taxed, while about 10% of my TAXABLE income (gross minus deductions) was taxed.
Residence Tax when Living with a Significant Other
Unlike the U.S., Japan does not recognize “married filing jointly.” If you are living with your significant other, each person will receive their own residence tax bill.
Residence Tax when You Have Kids
One of my friends is a mother with two beautiful children. She informed me that those who receive benefits from their municipality for raising kids are taxed on those benefits. In other words, family benefits are treated as taxable income, and result in an increased residence tax bill. If you accept money from your municipality for child rearing, this will be treated as taxable income.
“I Can’t Afford To Pay!”
Neither can I as I spend my money exploring random train tunnels. Here are a few different ways to pay your Residence Tax. The following applies if you are among the unlucky ones who received payment slips in the mail. If your school or local government automatically deducts it from your pay, thank them and ignore these steps.
Option 1. Pay it all at once
For this method, just go to the convenience store with all four payment slips and pay in cash. Convenience stores only accept cash, so cash is a must. Present your slips to the cashier, pay in cash, and you will receive a stamped receipt. That’s it! Some JETs prefer to pay their bill in one lump sum like this, while others, including myself, don’t.
Option 2. Pay Quarterly
For this method, just bring one payment slip to the convenience store before each payment is due. Present your slip to the cashier, pay in cash, and you will receive a stamped receipt for your records.
Option 3. Ask Your Employer Nicely
For this method, ask your supervisor if your employer can set up “special monthly salary deduction,” or 給与からの特別徴収 (Kyūyo kara no tokubetsu chōshū) for you. Not all employers offer this, so if yours doesn’t, just make quarterly payments outlined in Steps 1 and 2.
If your employer does offer it, they will ask you to make the first quarterly payment at a convenience store and provide a stamped receipt. You will also need to provide the three remaining payment slips, as well as your staff ID number (職員番号 – shokuin bangō) and date of birth. You can find your staff number on your monthly payslips and health insurance card. As for your birthday, you can find that on your Residence Card in case you forgot. Your supervisor will help you prepare the salary deduction application and viola, your residence tax will now be paid in monthly installments by your employer from June to May of the following year.
For Americans: How Does This Affect U.S. Taxes?
I am not a professional tax preparer or licensed by any entity to prepare taxes. Please consult a licensed tax professional.
You can consult the KumamotoJET Unofficial Tax Guide for matters regarding U.S. Taxes. In short, since most JETs file their U.S. taxes using the Foreign Earned Income Exclusion (FEIE), residence tax does NOT affect your U.S. Taxes. This is because foreign-earned income up to a certain amount ($112,000 for the 2022 tax year) is excluded. This makes your foreign-earned income zero dollars for U.S. tax purposes. For those of you filing using the Foreign Tax Credit (FTC), please consult a licensed tax professional for advice.
In Summary
Your residence tax is paid to your Prefecture and Municipality, and is one way you contribute to Japanese society. While it may seem scary, I hope this post eased your concerns.
Your residence tax for the prior year is calculated in June of the present year, and paid via salary deductions or in quarterly installments.
If you are American, you will not be double-taxed on it.
Additional Resources
Let’s be honest, I may not have been the best person to explain residence tax. If you’re looking for additional information, here are some English-language resources to help you navigate residence taxes.
TokyoJET’s Residence Tax Article