Tax Guide for Company Employees
A summary of the tax-saving and filing points salaried workers should know.
We explain, in plain terms, the systems employees can use too — year-end adjustment, Furusato Nozei (hometown tax), iDeCo and NISA, the medical expense deduction, and more.
Making the most of year-end adjustment
Check how to fill in the forms and how to claim extra deductions.
EssentialFurusato Nozei
Clearly when to use the one-stop exception vs. filing a tax return.
PopulariDeCo & NISA
How to build retirement savings and save tax at the same time.
PopularMedical expense deduction
Qualifying costs, how to claim, and the Self-Medication system.
DeductionSide jobs and tax returns
The ¥200,000 side-income rule and the basics of tax saving.
Side jobMortgage loan credit
How to calculate the credit and file the first-year tax return.
DeductionRanked by impact, the to-do list writes itself
Employees can use a long list of schemes, but the effect on take-home pay differs by an order of magnitude. Working down from the largest is simply rational. The figures below are annual estimates for a single person with no other deductions; on a ¥8,000,000 salary the same schemes are worth roughly 1.5 times as much, because the tax rate is higher.
| What to do | ¥5m salary (20% combined) | ¥8m salary (30% combined) | How to claim | When |
|---|---|---|---|---|
| Housing loan credit (¥30m balance) | about ¥210,000 | about ¥210,000 | Tax return in year one, year-end adjustment after | Year after moving in |
| iDeCo (¥23,000/mo → ¥62,000/mo from Dec 2026) | about ¥55,000 → about ¥149,000 | about ¥83,000 → about ¥223,000 | Year-end adjustment | Any time |
| Dependant deduction (one parent living elsewhere) | about ¥76,000 | about ¥114,000 | Year-end adjustment | November |
| Furusato Nozei (up to your limit, value of the gift) | about ¥16,000 | about ¥37,000 | One-stop exception or tax return | By 31 December |
| Life insurance premium deduction (full ¥120,000) | about ¥24,000 | about ¥36,000 | Year-end adjustment | November |
| Medical expense deduction (¥200,000 of costs) | about ¥20,000 | about ¥30,000 | Tax return | Feb–Mar (five years back) |
| Earthquake insurance deduction (full ¥50,000) | about ¥10,000 | about ¥15,000 | Year-end adjustment | November |
What changed for the 2026 tax year
2025 and 2026 brought back-to-back reforms affecting employees' take-home pay. Filling in your year-end adjustment from memory will cost you deductions you are now entitled to.
The basic deduction now has four tiers (2025 and 2026 tax years)
The basic deduction is no longer a flat ¥480,000. Anyone with total income of ¥6.55m or less receives a top-up, which brings an employee on ¥5m to ¥680,000. The top-up applies only to the 2025 and 2026 tax years.
| Total income | Rough salary equivalent | Basic deduction (2025 & 2026) | 2027 onwards |
|---|---|---|---|
| ¥1.32m or less | up to about ¥2m | ¥950,000 | ¥580,000 |
| ¥1.32m–¥3.36m | about ¥2m–¥4.75m | ¥880,000 | ¥580,000 |
| ¥3.36m–¥4.89m | about ¥4.75m–¥6.65m | ¥680,000 | ¥580,000 |
| ¥4.89m–¥6.55m | about ¥6.65m–¥8.45m | ¥630,000 | ¥580,000 |
| ¥6.55m–¥23.5m | about ¥8.45m–¥25.45m | ¥580,000 | ¥580,000 |
| ¥23.5m–¥24m | — | ¥480,000 | ¥480,000 |
| ¥24m–¥24.5m | — | ¥320,000 | ¥320,000 |
| ¥24.5m–¥25m | — | ¥160,000 | ¥160,000 |
| Over ¥25m | — | ¥0 | ¥0 |
"Total income" is salary after the employment income deduction. The salary equivalents assume no income other than salary.
The employment income deduction floor also rose
The minimum employment income deduction went from ¥550,000 to ¥650,000 for the 2025 tax year, and to ¥740,000 for the 2026 and 2027 tax years. The lower your income, the more it matters.
| Salary | Employment income deduction (2026 & 2027) |
|---|---|
| ¥2.2m or less | ¥740,000 |
| ¥2.2m–¥3.6m | salary × 30% + ¥80,000 |
| ¥3.6m–¥6.6m | salary × 20% + ¥440,000 |
| ¥6.6m–¥8.5m | salary × 10% + ¥1,100,000 |
| Over ¥8.5m | ¥1,950,000 (cap) |
The dependant threshold is ¥1.36m from the 2026 tax year
The income ceiling for claiming a spouse or relative as a dependant rose from ¥1.23m (2025) to ¥1.36m for 2026. Children aged 19–22 are covered on a sliding scale up to ¥1.88m under the special deduction for specified relatives. A family member you could not claim last year may qualify this year.
Making the most of year-end adjustment
For employees, tax (withholding tax) is deducted from each month's salary on an estimated basis. Year-end adjustment is the procedure that settles the difference between that estimate and the actual tax due. Simply filing the forms correctly gets you back any tax you overpaid.
on an estimate
forms to employer
the exact tax
refunded or collected
Main deductions you can claim at year-end adjustment
| Type of deduction | Rough deduction amount | Documents needed |
|---|---|---|
| Life insurance premium deduction | Up to ¥120,000 | Deduction certificate from the insurer |
| Earthquake insurance premium deduction | Up to ¥50,000 | Deduction certificate from the insurer |
| Dependent deduction | ¥380,000–630,000 per person | My Number, etc. |
| Spousal deduction | Up to ¥380,000 | Spouse's My Number, etc. |
| iDeCo contributions | Full contribution amount | Small-business mutual-aid (etc.) contribution payment certificate |
| Working-student deduction | ¥270,000 | Copy of student ID, etc. |
※ Actual annual income tax ＝ (employment income − various deductions) × tax rate
Furusato Nozei
By donating to a municipality of your choice, you receive a thank-you gift for an effective out-of-pocket cost of just ¥2,000. The donation amount minus ¥2,000 comes back to you as an income tax refund and a reduction in residence tax. For the breakdown of the deduction, how the cap is set, and the October 2025 ban on point rewards, see our Complete Guide to Furusato Nozei.
-
1
You → municipalityYou donateOn the day you donate, paid by card etc.−¥50,000
-
2
Municipality → youA thank-you gift arrivesA few weeks to months later. Worth at most 30% of the donationAbout ¥15,000worth of goods
-
3
National government and your home municipality → youNext year's taxes go downIncome tax is refunded; residence tax is reduced from June next year. With the one-stop exception the whole amount comes off residence tax+¥48,000
You get the full ¥48,000 back only if you stay within your deduction cap, which depends on income and family (see the guide below).
One-stop exception vs. tax return
| One-stop exception | Tax return | |
|---|---|---|
| Who it is for | Employees who do not need to file a return | Anyone |
| Number of recipients | Up to 5 municipalities | No limit |
| Procedure | Mail an application to each municipality | File a return in Feb–Mar of the next year |
| Where the deduction applies | Reduces residence tax only | Income tax refund + residence tax cut |
| Recommended for | Simplicity | 6 or more municipalities |
Rough deduction cap (single person / dual-income couple)
※ This varies with the number of dependents and your various deductions.
※ Within the deduction cap, the effective cost is roughly ¥2,000.
iDeCo & NISA
These are among the most powerful systems for employees, letting you build retirement assets while saving tax. With iDeCo, contributions are fully deductible from income, so you save tax right now while you accumulate. With NISA, investment gains and dividends are tax-free.
| iDeCo | NISA (new NISA) | |
|---|---|---|
| Timing of the tax saving | Right now (contributions are an income deduction) | In the future (investment gains are tax-free) |
| Contribution cap | ¥12,000–23,000/month (employees) Unified at ¥62,000/month from December 2026 | ¥3,600,000/year (including the growth investment quota) |
| Withdrawals | As a rule, not allowed until age 60 | Anytime |
| Tax at payout | Retirement income deduction or public pension deduction | Tax-free |
| Suits people who | Want to feel the tax saving right away | Want to invest long-term and flexibly |
※ The income tax rate runs from 5% to 45% depending on taxable income. A single person earning ¥5,000,000 has taxable income of about ¥2,100,000, so the income tax rate is 10% — 20% once residence tax is added. At ¥8,000,000 it becomes 20% plus 10%, or 30%.
Medical expense deduction
When the medical expenses your whole family pays in a year (January–December) exceed a set amount, you can claim the medical expense deduction on your tax return. Keep your receipts together in one place.
- Consultation and treatment fees at hospitals and clinics
- Prescription and over-the-counter drugs (for treatment)
- Hospitalization costs (including meals)
- Dental treatment (including implants)
- Transport for medical visits (train, bus)
- Childbirth and hospitalization costs
- Part of nursing-care service costs
- National Tax Agency: the 2025 revision of the basic deduction
- National Tax Agency: the 2026 increase in the basic deduction
- National Tax Agency, Tax Answer No.1410: employment income deduction
- National Tax Agency, Tax Answer No.1415: specific expense deduction
- Government of Japan: the December 2026 iDeCo reform
- Health checkups and full medical exams (qualify if a condition is found)
- Cosmetic treatment and plastic surgery
- Vaccinations
- Taxi fares for medical visits (except emergencies)
- Pajamas and daily necessities during a hospital stay
- Supplements and energy drinks
※ If your income is under ¥2,000,000, subtract "income × 5%" instead of ¥100,000.
※ The deduction is capped at ¥2,000,000.
If your spending on over-the-counter drugs (switch OTC drugs) exceeds ¥12,000, the excess (up to ¥88,000) is deductible. You must have undergone a health checkup or similar. It cannot be combined with the ordinary medical expense deduction.
The deduction almost nobody uses: specific expenses
People often say employees cannot deduct expenses. That is not quite true. In a year when your own work-related spending is large, there is a route to deducting actual costs — the specific expense deduction for employment income earners. The conditions are strict enough that only a few thousand people nationwide claim it each year, but for those who qualify the effect is real.
Spending that counts
Books, clothing and entertaining are grouped as "expenses necessary for the job" and capped at ¥650,000 in total.
The excess is deducted from employment income on top of everything else.
You must obtain a certificate from your employer confirming the spending was necessary for the job.
Side jobs and tax returns
If you are an employee with side-job income, tax procedures are required. As a rule, if it exceeds ¥200,000 a year you must file a tax return, but note that the ¥200,000 rule is a special measure for income tax only — residence tax is separate. For details, our Filing for side jobs covers how business income vs. miscellaneous income is judged and how to handle residence tax so your employer doesn't find out.
not required
(residence tax filing may still be needed)
required
(Feb 16 – Mar 15 of the next year)
Things you can expense for a side job (examples)
※ Side-job income is combined with your salary income to set the tax rate (progressive taxation).
※ If side-job income exceeds ¥3,000,000, keeping books may be required.
Mortgage loan credit
If you take out a mortgage to acquire your own home, a set percentage of the year-end loan balance is subtracted directly from your income tax (a tax credit). The mortgage loan credit can be claimed for up to 13 years and is an extremely large tax-saving system.
File at the tax office or via e-Tax in Feb–Mar of the year after you move in.
Just submit the "special mortgage-loan credit certificate" and the "year-end balance certificate" to your employer.
Credit rate, period and cap (rough figures for moving in from 2024)
New builds must, as a rule, meet energy-efficiency standards, and the borrowing limit (＝ the cap on the credit-eligible amount) varies by home performance. Child-rearing households and young married households (with a dependent under 19, or one spouse under 40) get an add-on to the borrowing limit, which is revised each fiscal year. Check the Ministry of Land, Infrastructure, Transport and Tourism for the latest. If you take out the loan as a couple, see also The benefits and risks of a pair loan.
| Type of home | Credit rate | Credit period | Annual cap |
|---|---|---|---|
| Certified long-term quality / low-carbon housing | 0.7% | 13 years | ¥350,000 |
| ZEH-level energy-efficient housing | 0.7% | 13 years | ¥315,000 |
| Housing meeting energy-efficiency standards | 0.7% | 13 years | ¥280,000 |
| Other housing | 0.7% | 10 years | ¥210,000 |
※ If it cannot be fully credited, part is also credited against residence tax (up to ¥97,500).
※ If your income tax is less than the credit, the shortfall is subtracted from residence tax.
Leaving or changing jobs mid-year usually means you overpaid
If you left a job during the year, you may not have had a year-end adjustment at all, or your previous employer's figures may never have been included. Withholding assumes the salary continues all year, so stopping part-way through generally leaves you having paid too much.
| Your situation that year | What happens | What to do |
|---|---|---|
| Changed jobs and gave the new employer your previous withholding slip | The new employer combines both and settles it | Nothing (just confirm you handed it over) |
| Changed jobs but never submitted the previous slip | The earlier period is never settled — you stay overpaid | File a tax return to settle it |
| Left mid-year and did not start a new job that year | No year-end adjustment, so you have almost certainly overpaid | File a tax return (possible from January) |
| Received a retirement payment | Usually settled if you filed the retirement income declaration | If you did not, a tax return recovers it |
| Paid national health insurance and pension yourself after leaving | Those premiums are deductible as social insurance | Claim them on your return (keep the payment records) |
What to do today
Today's actions
- Find your withholding slip and work out your taxable income and tax rate. Subtract "total income deductions" from "amount after employment income deduction". Up to ¥3.3m the income tax rate is 10%; above that, 20%. Without this number you cannot judge what any scheme is worth to you.
- Spend five minutes checking for deductions you pay for but never claim. Life insurance, earthquake insurance, iDeCo, money sent to a parent living elsewhere, a child's national pension premiums. Anything you find can be reclaimed for up to five past years.
- If you have no iDeCo account, open one before the December 2026 increase. It takes one to two months to start. At a ¥5m salary, ¥23,000 a month saves about ¥55,000 a year; at the new cap, about ¥149,000.
Learn more in related columns
Furusato Nozei guide
The breakdown of the deduction, the cap, the one-stop exception, and the 2025 revision.
How to calculate the medical expense deduction
What qualifies, calculation, netting reimbursements, and Self-Medication.
iDeCo's tax-saving effect
Contributions are fully deductible. Filing steps and tax at payout.
Filing for stocks and NISA
The basics of specified accounts, loss offsetting and carryover.
Filing for side jobs
The precise meaning of the ¥200,000 rule and the residence-tax trap.
The risks of a pair loan
The mortgage loan credit for two, group credit life insurance, divorce and ownership shares.
How to read your withholding slip
What the four figures mean and what the 2025 revision changed.
How much for the spousal deduction?
The latest ¥1.23M and ¥1.60M thresholds and how they differ from the social-insurance wall.
Conditions for health-insurance dependents
The ¥1.30M threshold, how it differs from tax dependency, and the new 2026 rules.
How to read your residence-tax notice
Checkpoints for the notice that arrives in June and confirming your Furusato Nozei.
Tax and take-home pay on your bonus
Take-home is 75–85% of gross. What is deducted and how it is calculated.
FAQ
When does an employee need to file a tax return?
You need to file for things like the medical expense deduction, the donation deduction (Furusato Nozei to 6 or more municipalities), and the first year of the mortgage loan credit. You also need to file if your non-salary income exceeds ¥200,000 a year, you receive salary from two or more places, or your annual income exceeds ¥20,000,000, among other cases.
What is the difference between year-end adjustment and a tax return?
Year-end adjustment is the settlement your employer performs, reflecting things like insurance premium deductions and dependent deductions. Deductions that year-end adjustment cannot handle — such as the medical expense deduction or Furusato Nozei (when the one-stop option is not used) — you claim yourself by filing a tax return.
Can I use both Furusato Nozei and the medical expense deduction?
Yes, you can use both. However, if you file a tax return for the medical expense deduction, the Furusato Nozei one-stop exception becomes invalid, so you must also list the donations under the donation deduction on your return.
What is my income tax rate?
It follows from your taxable income: "amount after employment income deduction" minus "total income deductions" on your withholding slip. Up to ¥1.95m the rate is 5%, up to ¥3.3m it is 10%, and up to ¥6.95m it is 20%. A single person on ¥5m has taxable income of roughly ¥2.1m, so 10%; on ¥8m it is 20%. Because a deduction saves "amount × (income tax rate + 10% residence tax)", knowing this number lets you price any scheme yourself.
I forgot a deduction at the year-end adjustment. Is it lost?
No. File a tax return (a refund claim) afterwards. Refund claims can be filed for five years from 1 January of the year after the tax year, so a 2021 claim is still possible until the end of 2026. Forgotten life insurance, iDeCo and dependant deductions are the classic cases.
I heard the iDeCo cap is rising. Do my contributions increase automatically?
No. From December 2026 the employee cap is unified at ¥62,000 a month including corporate pension contributions, but increasing what you pay in requires a change request to your provider. If your employer's pension contributions are large, the room left for iDeCo shrinks accordingly, so confirm your own cap with your administrator.
The dependant threshold rose to ¥1.36m, so why was I removed as a dependant?
Because tax and social insurance are different systems. From the 2026 tax year the tax threshold is ¥1.36m, but the health insurance threshold is unchanged at ¥1.3m as a rule (or ¥1.06m depending on the employer's size). Losing social insurance dependant status means paying premiums, which affects take-home pay more than the tax threshold does.
Sources / official information
This article is based on the official information below. Systems may be revised; please check each official site for the latest details.
- National Tax Agency — Tax Answer No.1900 Salary earners who must file a tax return (in Japanese)
- National Tax Agency — Understanding year-end adjustment (in Japanese)
- National Tax Agency — Tax Answer (common tax questions) (in Japanese)
※ This article is for general information only and is not tax or legal advice. For individual tax matters, consult your local tax office or a licensed tax accountant (zeirishi).
