Navigating the Year-End Tax Adjustment (Nenmatsu Chosei)

The Year-End Adjustment (年末調整 - Nenmatsu Chosei) is a crucial process for most salaried employees in Japan. It's essentially how your employer finalizes your national income tax liability for the year, ensuring the correct amount has been withheld.

What is the Year-End Adjustment?

Throughout the year, your employer withholds an estimated amount of income tax from your monthly salary and bonuses. The Year-End Adjustment, typically conducted around November/December, reconciles the total tax withheld with your actual tax liability for the year. This process takes into account various deductions you might be eligible for.

Who is it For?

This process primarily applies to individuals who receive employment income (salary, wages, bonuses) and have submitted a "Declaration for Deduction for Dependents, etc." form to their primary employer. If you have only one employer and your annual salary is ¥20 million or less, and you have no other significant income (e.g., side income over ¥200,000), the Year-End Adjustment usually means you don't need to file a separate final tax return (Kakutei Shinkoku).

Purpose of the Year-End Adjustment:

• To correctly calculate your annual income tax based on your total earnings for the year.
• To apply various deductions you are entitled to, such as:
  • Social insurance premium deductions (health insurance, pension, employment insurance paid).
  • Life insurance premium deductions.
  • Earthquake insurance premium deductions.
  • Spouse and dependent deductions (if there were changes during the year or not fully declared).
  • Deductions for small-scale enterprise mutual aid premiums (like iDeCo).
  • Housing loan deduction (for the first year, you must file a tax return; subsequent years can often be handled via Nenmatsu Chosei).
• To refund any overpaid tax or collect any underpaid tax directly through your December salary or a separate payment.

Process and Required Documents:

Your employer will typically provide you with forms to fill out, such as:

• Declaration of Deductions for Insurance Premiums (保険料控除申告書 - Hokenryo Kojo Shinkokusho): To declare life insurance, earthquake insurance premiums. You'll need to attach certificates from the insurance companies.
• Declaration for (Special) Exemption for Spouse and Declaration for Exemption for Amount of Income Adjustment (配偶者控除等申告書 - Haigusha Kojo-tou Shinkokusho): If applicable.
• Other forms depending on your circumstances (e.g., for housing loan deductions).

It's essential to submit these forms and supporting documents to your employer by their deadline.

When is a Final Tax Return Still Needed?

Even with a Year-End Adjustment, you might still need to file a final tax return if:

• Your annual salary exceeds ¥20 million.
• You have more than one employer.
• You have side income (e.g., from freelancing, rental property) exceeding ¥200,000 after expenses.
• You want to claim certain deductions not handled by the Year-End Adjustment, such as:
  • Medical expense deductions.
  • First-year housing loan deduction.
  • Casualty loss deductions.
  • Donation deductions.

The Nenmatsu Chosei simplifies tax compliance for many employees, but it's important to understand its scope and when further action (like filing a tax return) is necessary.