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How to calculate employee’s withholding tax in Japan

How to calculate employee’s withholding tax in Japan

How to calculate withholding tax in Japan ( In the case of employment income = Kyuyo shotoku )

In the case you are a employer and pay salary for your employee, you need to conduct withholding.
If you pay your employee salary of 200,000 yen, you cannot pay 200,000 yen.
You need to deduct specific amount of money ( assumed 10,000 yen ) from 200,000 yen and pay 190,000 yen to employee.
Otherwise, the employee may not pay income tax by herself.
And if there is not system of withholding tax, a lot of salaried workers go to ftax office and it will consume a lot of time of tax office employers.

This process is named “withholding  ( Gensenchoshu = 源泉徴収 )” and employer has obligation to perform withholding.

When you pay salary to your employee, at the end of year ( or when your employee leaves your company mid of year, at the timing of payment of last salary ), you need to provide your employee ” withholding tax slip = statement of earnings of earned income ( gensen choshu hyo = 源泉徴収票 )”.
This paper is necessary when your employee files final tax return by herself or borrow money from bank etc.

In order to make this ” withholding tax slip = statement of earnings of earned income ( gensen choshu hyo = 源泉徴収票 )”, you need to know how to calculate the amount of withholding tax in Japan.

So, in this page, I will explain how to calculate the amount of withholding tax.

In the case, you calculate the amount of withholding tax, you need to look at table of withholding tax in the case of employment income ( written in Japanese language ) issued by Japanese government.

There are three kind of this table and you need to select suitable one.

They are “Monthly amount = 月額 ” and ”daily amount 日額 ” and ” bonus 賞与”.

When you pay salary every month, or every 10 days, you use “Monthly amount = 月額 ” table.

In the case you pay salary every day, you use ”daily amount 日額 ” table.

If you pay bonus, you use ” bonus 賞与” table.

In the case you open “月額表”monthly amount table, you can find 甲(kou ) and 乙 ( otsu ).

In the case, your employee submits ” declaration of exemption for dependents and others ( fuyo kojo tou shinkokusho = 扶養控除等申告書 ) ” to your company, you need to look at ” 甲 kou”column.

In the case your employee has plural job and she submits this ” declaration of exemption for dependents and others ( fuyo kojo tou shinkokusho = 扶養控除等申告書 ) ” to other company, you need to look at ” 乙 otsu ”column.
If your employee submits this document to other company, the other company is her main job and your company is deemed to be side job.

In the case, your employee does not have any work other  than your company, she  needs to submit ” declaration of exemption for dependents and others ( fuyo kojo tou shinkokusho = 扶養控除等申告書 ) ” to your company. ( You need to demand your employee to submit this paper ).

You need to receive this fuyo kojo tou shinkokusho = 扶養控除等申告書  from your employee in December for next year.

If you hire new employee mid of fiscal year ( assumed June 2016  ), you need to receive this document for the year ( For 2016 ).

Once you receive declaration of exemption for dependents and others ( fuyo kojo tou shinkokusho = 扶養控除等申告書 ) , you do not need to submit it to tax office.
You just keep it in your company.

In the case, your employee does not submit this declaration of exemption for dependents and others ( fuyo kojo tou shinkokusho = 扶養控除等申告書 ) to your company, you need to look at Otsu column.

( In the case your employee has plural job at the end of year, she receives withholding tax slip from both company and she needs to file tax return by herself. )

🙂 Explanation of withholding tax table (  Gensen choshu zeigaku hyo = 源泉徴収税額表 ) in Japan.

In the case you have received  declaration of exemption for dependents and others ( fuyo kojo tou shinkokusho = 扶養控除等申告書 ) from your employee, you look at “甲 kou”column.

Assumed that the amount of monthly salary is 300,000 yen and sum amount of social insurance premium (  Kenko hoken = health insurance + Kosei nenkin = welfare pension + koyo hoken = employment insurance )  is 10,000 yen and you pay salary every month and your employee has two dependents.

In this case, you need to look at red circled part to know the amount of withholding tax and you can know the amount of withholding tax is 4800 yen.

In the case of bonus ( 賞与 )

Assumed that the number of dependents of your employee is one.
The amount of salary of previous month after deduction of social insurance premium is 200,000 yen.
( Assumed you pay bonus in February 2016. The amount of salary of January 2016 after deduction of social insurance premium is 200,000 yen.  )

According to this table, you can find ” 2.042 % “.

So, the amount of withholding tax is 200,000 × 2.042 %  = 4084 yen.


Difference between employment contract ( Koyou keiyaku  ) and contract agreement ( Ukeoi keiyaku ).

Assumed that you are operating software programming business.

Then, your business is very busy and you want to hire a person for only 1 month.

She is supposed to make a specific software.

In that case, you can use her based on employment contract or contract agreement.

In the case you have concluded employment contract with her, you need to conduct withholding tax when you pay her money ( salary ).

And labor standard law is applicable to her.

She needs to obey your instruction during her work.

Even if she cannot make a specif software, as far as she has worked for you, you need to pay her salary.

On the other side, if you have concluded contract agreement, you do not conduct withholding tax when you pay her money ( Her fee ).

She is self employee like you.

And labor standard law is NOT applicable to her.

She does not need to obey your instruction during her work.

She just needs to make a specific software by designated duration.

If she cannot make a specific software, you do not need to pay her money.

She shall violate of contract agreement with you.

If an employee quits his job, he needs to file tax return by himself (How to conduct year end adjustment in Japan?)

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