Get a refund by doing Nenmatsu-chosei: a year-end tax adjustment
As a foreigner living and working in Japan, the tax filing process is perhaps one of the most hectic and confusing paperwork you need to do while living in Japan. Once you’re registered as an employee working and living in Japan, you are considered as a resident, and you are obligated to pay all the taxes in Japan, including income tax and resident tax. When it comes to income tax, you are eligible to get a refund by filing the year-end tax adjustment, or Nenmatsu-chosei (年末調整).
To help you with this, we’ve compiled a guide on what you need to know about the year-end tax adjustment in this feature.
What is Nenmatsu-chosei?
Nenmatsu-chosei is a year-end tax adjustment wage earners need to declare at the end of the year, to make sure that the sum of income tax paid within the year, which automatically deducted from each paycheck, is equal to the final annual income tax. If the income tax is overpaid, wage earners will get a refund after the adjustment is settled. The process of Nenmatsu-chosei is not so difficult as the employers will do the most parts, and wage earners only have to fill in a few pages of paper and submit them to the companies.
Are you eligible for Nenmatsu-chosei?
Not everyone is eligible for Nenmatsu-chosei, and wage earners who fall under the following conditions can’t apply for Nenmatsu-chosei:
- Those who leave Japan before the year ends
- Those who work for a non-Japan based companies
- Those who earn more than 20 million yen a year
Those who fall under the following conditions can apply for Nenmatsu-chosei, but still need to apply for Kakutei Shinkoku (final income tax return in Japan):
- Those who work for more than one employer (multiple part-time employers, freelance income, etc)
- Those who earn other annual income that exceeds 200,000 yen (around US$1,850)
The paperwork you need to complete
If you’re eligible for Nenmatsu-chosei, your employer will give you Nenmatsu-chosei Hyo (年末調整表) forms to fill in around November or December. These forms will give you space to write updates on information such as dependents, private insurance contributions, social insurance premiums, etc. The employer will give you the example of how to fill in the documents, and if an example isn’t provided, you can always ask the administration department to help you fill the forms.
After you submit those forms, your employer will calculate and adjust the year-end taxes, and if there’s a positive adjustment on your tax payment, you will receive a tax refund in your last paycheck for the year.
What you should do if you have more than one source of income
If you have more than one source of income, we recommend doing Nenmatsu-chosei and Kakutei Shinkoku to get more tax refund, as most freelance employers deduct Gensen-choshu (源泉徴収) , or withholding tax, from your freelance income. The rate of Gensen-chosu for freelancers is 10.21%, and depends on the amount of your side income, you might get a tax refund, or you might have to pay extra income tax if your side income exceeds the limit set by the government.
If you’re a tax expert, we recommend doing Kakutei Shinkoku only to avoid double work when filing your tax, but the process is more hectic than doing the Nenmatsu-chosei and Kakutei Shinkoku separately, as you need to calculate everything by yourself before filling the forms you need to submit to the National Tax Agency in Japan.
What would happen if you owe taxes?
If you’ve changed jobs during the year with varying wages, or if you had a couple of part-time jobs before you started your current job, you might end up owing taxes to the government. Nenmatsu-chosei allows you to adjust your tax easily by the year-end, but if you combine your current income and the previous income you’ll end up owing taxes to the government. The amount of taxes you owe will be deducted from your last paycheck for the year.
If you fall under these conditions, we strongly suggest doing Nenmatsu-chosei and Kakutei Shinkoku, as you can include your medical expense that isn’t covered by the insurance (if you have one), as a cost that will help you to deduct the amount of taxes you owe to the government. Kakutei Shinkoku is done separately from Nenmatsu-chosei, and we’ll give you a detailed explanation about the process in a different feature.
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