The Complete 2025 Guide to Seamless Year-end Tax Adjustments in Japan

As a business owner or employer in Japan, it is your legal responsibility to conduct Nenmatsu-Chosei (年末調整), the year-end tax adjustments in Japan for your employees. This ultimate guide will provide in-depth guidance on what you need to complete your year-end adjustments in Japan and a step-by-step procedure.

Key Takeaways

What is Nenmatsu-Chosei/Year-end tax adjustments in Japan?

As an employer, you are legally required to deduct withholding income taxes 源泉徴収 (Gensen-Choshu) from your employees’ paychecks (10.21% if below, and 20.52% if above 1 million yen). 年末調整 (Nenmatsu-Chosei) is the process of adjusting these over or under-deducted taxes. 

Year-end tax adjustments in Japan/Nenmatsu-Chousei is crucial for securing your tax refunding, managing employees’ taxes correctly, and accurately handling the company’s tax matters to avoid complications with the tax office and the Japanese government. 

Who is in charge of year-end tax adjustments in Japan

You as an employer are in charge of collecting the required documents to conduct a Nenmatsu-Chosei. Many bigger companies will allocate this responsibility to their HR or general affairs department. Many companies will also outsource this task to accountants or social insurance firms. 

On the other hand, Kakutei-Shinkoku is an employee’s responsibility after Nenmatsu-Chousei is completed. Employees will acquire their tax-adjustment slip from their company, and take it to their local tax office. 

Check out this article if you are looking to learn more about corporate tax for your business. 

In addition, employees earning over 20 million yen annually, over 200,000 yen from a side job, or working as independent contractors must complete Kakutei-Shinkoku independently. 

Read about Japanese taxes for new businesses if you are new to the Japanese business scene. You can also listen to this podcast to maximize your tax benefits. 

Required documentation for year-end tax adjustments in Japan

Here’s a breakdown of all documentation you will need to prepare for your employees to complete, as well as documentation your company will prepare to submit to the tax and municipal offices. 

Two documents your company must prepare for the tax office for year-end tax adjustments in Japan

Your company will prepare two sets of documents concerning your employee’s withheld tax information and salary information for the tax office. 

Withholding tax slips/源泉徴収票

If your company has employees with a salary exceeding ¥5 million (or ¥1.5 million for directors) you are required to issue withholding tax slips. These documents will inform the tax office how much taxes were deducted from the employees that year. 

Additionally, Employees who switch jobs mid-year may have income tax deducted from their previous employer. In this case, they must submit their withholding tax slip from whichever the lower income was to the higher income paying employer. 

Summary of statutory report summary table (including payment record for employee)/給与所得の源泉徴収票等の法定調書合計表

This document lists the total amount of salary paid and taxes deducted from all employees. This document differs from withholding tax slips in that withholding tax slips are completed by each employee, while the summary of statutory report summary table is collected and cosolidated into one.

Familiarize yourself with Japanese tax laws to avoid complications with the NTA and master year-end tax adjustments in Japan.

Two documents your company must prepare for the municipal office for year-end tax adjustments in Japan 

Your company will prepare two sets of documentation including a summarized cover letter of all employee’s salaries, and a report for all employee’s salaries. 

Summary payroll report/給与支払報告書 (総括表)

This document works as a cover page of the submitted documents. You must include your company’s name, location, and total number of employees who live in the same city or town as the company in the report. 

Individual salary payment report/給与支払報告書 (個人別明細書)

These documents will have the same contents as the withholding tax slips, but all employee salary payment reports must be documented. The individual salary payment reports will be sealed with the summary payroll report. 

Five documents employees will need to complete for year-end tax adjustments in Japan

Here are five documents your company will provide to every employee to fill out by the due date. All employees must complete these necessary forms, as it will help them by potentially having tax returns through the process of year-end tax adjustments in Japan.

1. Dependent deduction declaration form for salary earners (給与所得者の扶養控除等（異動）申告書) 

Employees or their dependent relatives may qualify for tax deductions if they fall into one of the following categories:

• Widowed individuals
• Disabled persons
• Single parents
• Working students

By properly filing this form, employees can maximize their tax savings and make sure they are complying with Japan’s tax regulations.

2. Insurance premium deduction declaration form for salaried employees (給与所得者の保険料控除申告書) 

The following insurance premiums are tax-deductible in Japan, helping to reduce employees’ taxable income:

• Life insurance premiums
• Earthquake insurance premiums
• Social insurance premiums
• Small business mutual aid contributions
• Private pension insurance premiums

By properly declaring these deductions, employees can lower their annual tax burden.

3. A four-in-one document: 

(a). Basic Exemption of Employment Income Earner (給与所得者の基礎控除申告書), 

(b). Application for Exemption for Spouse of Employment Income Earner (給与所得者の配偶者控除等申告書) 

(c). Application for Flat-amount Cut of Personal Income Tax in Year-end Adjustment (年末調整に係る定額減税のための申告書) 

(d). Application for Exemption of Amount of Income Adjustment (所得金額調整控除申告書)

This is based on four types of deductions: 

• Basic Income Deduction: Maximum deduction of ¥480,000 for individuals earning ¥25 million or less annually.

• Spousal Deduction: Eligible taxpayers earning ¥10 million or less can claim up to ¥380,000 for a spouse.

• Special Spousal Deduction: If the employee’s income is ¥10 million or less and the spouse earns between ¥480,000 and ¥1,330,000, they may qualify for a deduction of up to ¥380,000.

• Income Adjustment Deduction: Employees earning over ¥8.5 million can receive a deduction of up to ¥150,000 if they meet one of the following criteria: They are a disabled person, they have a dependent under 23 years old, or if they have a disabled spouse or relative living in the same household.

By properly submitting these declarations, employees can significantly reduce their taxable income. 

4. Documents for Housing loan deduction forms (住宅借⼊⾦等当別控除申告書): This document applies to employees who have taken out a loan to purchase a house 

• Special deduction for housing loans form (住宅借⼊⾦等特別控除申告書)

• Certificate of loan balance form (融資額残⾼証明書) (issued by the Japan Housing Finance Agency)

• Certificate of the year-end balance of loans related to home acquisition funds (住宅取得資⾦に係る借⼊⾦の年末残⾼等証明書) (issued by the financial institution of the loan provider) 

By properly submitting these forms, employees can benefit from significant tax reductions under Japan’s housing loan deduction program and ease the financial burden of homeownership.

5. Withholding tax slips (源泉徴収票)

• Employees who switch jobs mid-year may have income tax deducted from their previous employer. In this case, they must combine the deducted tax with their current employer to complete the year-end tax adjustment.

By following these steps, we ensure that the correct amount of tax is calculated and any overpayment or underpayment is adjusted accordingly in completing the year-end tax adjustments in Japan.

Step-by-step guide to the year-end tax adjustments in Japan

When navigating the year-end tax adjustments in Japan, you may end up with your head in your hands. To help you, we have prepared a comprehensive step-by-step guide on each step you must take, and the deadlines for each of those steps. 

Step 1: Handing out and collecting documentation from employees  [November]

You must ensure that all employees submit their required forms by the end of November. Then your company must gather all necessary documents and information from all employees by the end of November.

By proactively gathering this information, your company can minimize last-minute issues.

Step 2: Calculating tax adjustments based on the information you gathered [December]

Once all employee information is collected, it’s time to assess tax adjustments to make sure that you accurately complete the calculations. Follow these key steps:

• Compare Withheld Tax vs. Actual Tax Liability: Evaluate total income tax withheld throughout the year against the actual tax owed based on annual income and deductions.
• Handle Overpayments: If taxes were overpaid, calculate the refund amount and credit it to the employee’s December or January salary.
• Adjust for Underpayments: If taxes were underpaid, deduct the remaining amount from the same salary payments to avoid future tax issues.

If you are unsure or hesitant about calculating your employee’s taxes, you may consider outsourcing this task

Step 3: Submit all reports to the authorities [1/10]

Your fourth step is to submit everything you have to the tax office and municipal office 

Make sure you have all the required documents, as submitting documents after the deadline can cause penalties. 

*Although you do not need to submit receipts to the authorities, the NTA requires you to keep them for at least 5 years. 

Step 4: Provide employees with documentation [After completion] 

You are required to provide withholding tax statements (源泉徴収票/Gensen-Choshu Hyo) by January 31. These statements detail each employee’s income and withheld taxes, serving as essential documentation for those filing a final tax return (確定申告/Kakutei-Shinkoku) to claim additional deductions or adjustments

It’s important to remember that your company always has options for tax reductions. For example, you can consider paying your employees an end-term bonus or using business travel expenses. 

Cost considerations: Insourcing vs outsourcing your year-end tax adjustments in Japan

It’s important to understand that Nenmatsu-Chousei can be done in one of two ways: Done within the company, or by outsourcing. 

You may consider insourcing by creating a department for tax adjusting.

It’s important to consider training costs if you will have the HR (Human Resources) department or general affairs departments handle year-end tax adjustments in Japan. In doing so, your employees can benefit from online tools such as the following: 

• Cloud payroll software: Anywhere from ¥2,300 to ¥29,700 monthly per employee’s taxes. 

Insourcing this process will assure full control over the process, cost savings in the long run, and data security. 

Many companies utilize outsourcing as an effective option for handling year-end tax adjustments in Japan.

You can do this by partnering with a professional tax accountant office for expert services or hiring an accountant to handle your needs. Here’s a breakdown of how much outsourcing will cost you: 

¥11,500 – ¥35,150 = (Basic fee + commission per employee + optional fees) 

1. Basic fee: ¥10,000 – ¥25,000 for preparing documents and labor cost 
2. Commission: ¥1,500 – ¥3,000 per employee
3. Optional fee: 

• ¥5,500 for statutory statement summary table
• ¥1,650 for employee payment statements 

This approach saves valuable time and resources for your company. Many SME owners find outsourcing to be effective in completing the year-end tax adjustments in Japan.

Learn more about your tax office notifications for your business. 

Relevant societal concerns: The ¥1.03 million wall

To close things off, year-end tax adjustments in Japan are a hot topic today. The ¥1.03 million tax threshold affects both employees and businesses. You must stay on top of the tax debate in Japan, as employees’ tax brackets are shifting drastically. 

The Japanese government has made significant changes to income tax deductions in 2025, addressing the long-standing ¥1.03 million wall (103万円の壁) that has been in place since 1995. Here’s an overview of the changes and their implications:

New Tax Deduction Structure:

1. Basic Deduction (基礎控除): Increased from ¥480,000 → ¥580,000. 

2. Employment Income Deduction (給与所得控除): Minimum guaranteed amount raised from ¥550,000 → ¥650,000. 

3. Special Dependent Deduction: Increased from ¥1.03 million → ¥1.50 million in income, with gradual reductions for higher incomes. These changes effectively raise the tax-free income threshold from ¥1.03 million → ¥1.23 million.

*Two Year Limit 

Additional Deductions:

For incomes under ¥2 million, an additional ¥370,000 deduction is available on top of the ¥580,000 basic deduction. This brings the total potential deduction to: 

¥580,000 (Basic) + ¥650,000 (Employment) + ¥370,000 (Additional) = ¥1.6 million 

However, it’s important to note that the full benefit of these deductions is limited to workers with incomes under ¥1.875 million. Further, the additional deductions for incomes between ¥2 million and ¥8.5 million are temporary, lasting only two years.

Impact on Dependents 

The changes also affect the dependent status within households. Previously, individuals earning over ¥1.03 million could not be considered dependents, resulting in increased taxes for their parents. The new threshold of ¥1.23 million provides some relief, but the complex structure means that the impact varies depending on individual circumstances. 

While these changes represent progress in addressing the outdated ¥1.03 million barrier, further reforms may be necessary to fully modernize Japan’s income tax system.

Master the essentials of tax reductions in Japan and unlock the maximum profit potential

Conclusion

• Properly managing Year-end tax adjustments in Japan/Nenmatsu-Chosei (年末調整) will make sure that you are complying with the NTA and maximizing your tax benefits in Japan as a business owner. Stay organized, meet deadlines, and consider professional help for a smooth process. 

• Our team is dedicated to providing you with hands-on assistance with your business. Book a free consultation with us at SmartStart and let us help you with our tailored service to your needs. 

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