End of year tax adjustment
The end of year tax adjustment, or nenmatsu chousei (年末調整) is a document that salaried workers can complete at the end of each year. It allows the employer to adjust the amount of tax that was deducted from salary by the actual amount of tax due based on your income over the past year, and entitlement to any deductions.
Employees who submit an end of year tax adjustment do not need to also submit a tax return if they satisfy the following conditions:
- Earn less than 20 million yen a year
- Do not work for other companies or have other income they need to declare
- Do not need to claim tax deductions that are not claimable via the end of year tax adjustment
Even when claiming deductions that are only available via a tax-return, it is still possible to submit an end of year tax adjustment. Your employer will produce a tax-withholding certificate (給与所得の源泉徴収票) which can be used when creating a tax-return, to avoid re-calculating the same information.
The adjustment consists of two parts:
- The form for next year, in which you tell your employer how many dependents you will have at the end of the next tax year, so along with this year's salary information as a prediction of next year's salary level, they can estimate how much tax they will have to withhold every month from next year's salary to meet your expected tax liability for the end of next year.
- The form for this year, in which you confirm, or tell your employer if there are any changes to, your situation that you reported in the previous form at the beginning of the year. This form allows you to claim deductions for Insurance Premiums, Pension Contributions, and Home Loan Interest Tax Relief (from the second year onwards), etc.. See full list below. This allows your company to reconcile the amount withheld throughout the year with the amount actually owed and either provide a refund of excess withheld, or withhold any shortfall in December Paycheck.
The following deductions can be claimed on the end of year tax adjustment:
- Basic Deduction (基礎控除) - applied automatically
- Spouse Deduction (配偶者控除)
- Dependent Deduction (扶養控除)
- Life Insurance Deduction (生命保険料控除)
- Earthquake Insurance Deduction (地震保険料控除)
- Small Business Mutual-Aid Etc. Deduction (小規模企業共済等掛金控除) - includes iDeCo
- Social Insurance Deduction (社会保険料控除)
- Disability Deduction (障害者控除)
- Single-Parent Deduction (ひとり親控除)
- Widow/Female Divorcee Deduction? (寡婦控除)
- Working Student Deduction (勤労学生控除)
- Home Loan Interest Tax Credit (住宅借入金等特別控除) (From the second year onwards)
The following deductions cannot be claimed via the end of year tax adjustment, it is necessary to also submit a tax return.
- Medical Expenses Deduction (医療費控除)
- Miscellaneous Losses Deduction (雑損控除)
- Donation Deduction (寄附金控除) - used for Furusato Nozei, but donations can be handled without a tax return under certain conditions, see Furusato Nozei for details.
- Home Loan Interest Tax Credit (住宅借入金等特別控除) (First year)
For instructions on how to claim a tax deduction for iDeCo contributions, see iDeCo#End of Year Tax Adjustment.