Japan | Employment Tax | 2024 fixed amount ‘tax cut’ to stimulate economic growth

On March 28, 2024, the National Diet passed the 2024 Japan Tax Reform Proposal into law, enacting a fixed amount tax cut designed to bolster the economy. This measure aims to alleviate the financial strain on individuals whose wages have not kept pace with rising prices, and to overcome deflationary mindsets. The one-time fixed amount tax cut will reduce both national and local tax obligations for eligible individuals in 2024.

Due to the introduction of fixed amount tax cut, payroll work is expected to be more complex in 2024. This article focuses primarily on the Japanese payroll procedures related to implementing the tax cut.

Note 1: Individual receiving salary income cannot opt out for ‘monthly tax cut process’ by themselves.

Note 2: Individual whose total adjusted income exceeding JPY 18.05 million (equal to 20 million yen in employment income) are not eligible for the tax cut. However, if employed as of June 1, 2024, the principal employer is obligated to process the ‘monthly tax cut ‘and reverse tax cut to zero later through year-end or annual tax returns.

To qualify for the tax cut through the Japanese payroll in June, Japan resident individuals must meet the following conditions:

1. Employed by the principal employer (Note 3) as of June 1, 2024.
2. Submitted a dependent exemption declaration form by June 1, 2024.
3. Spouse and dependents (Note 4) of the eligible employee with total adjusted income of 480,000 yen or less (equal to JPY 1.03 million yen in employment income).

Note 3: Principal employer is the company that received a dependent exemption declaration form.

Note 4: Japan residents only.

There are two payroll adjustments this year: the ‘monthly tax cut process’ and the ‘year-end tax cut process’.

The ‘monthly tax cut process’ will be initiated with the first salary payment in June or later. Employers must confirm the number of eligible dependents to determine the total tax cut amount. Any remaining balance will be deducted from subsequent payrolls until fully offset.

It’s essential to differentiate between dependents eligible for the tax cut and those eligible for income tax deductions. For example, dependents under 16 years old may not qualify for income tax deductions but are eligible for the tax cut if their income falls below the threshold.

The ‘year-end tax cut process’, required in December, involves adjusting tax cuts alongside regular year-end adjustment activities. For employees with total adjusted income exceeding JPY 18.05 million, their tax cut must be reversed to zero. No adjustment is necessary for employees exempt from year-end adjustments, with reconciliation occurring through their annual tax return as needed.

Local tax adjustment follows a different timeline from national tax and is not reflected in June’s payroll. From July, adjusted local taxes will be deducted in eleven installments until May 2025. For individual’s ineligible for the fixed amount tax cut at the local tax level, payments will proceed as usual, spread over 12 monthly installments starting from June 2024.

Our team is prepared to support companies, especially those navigating the complexities of processing the fixed amount tax cut for globally mobile employees in 2024. This includes employees with split payrolls between the home and the host countries or those moving in and out of Japan during the tax year.

While navigating the 2024 fixed amount tax cut poses challenges, addressing unique employee situations requires additional expertise and tailored strategies. Understanding the tax regulations and proactive approaches will be crucial for effective implementation, ensuring compliance and maximizing benefits for all stakeholders.

For a deeper discussion on the above, please reach out to your Vialto Partners point of contact, or alternatively:

Noriyuki Tominaga
Japan Partner

Ryo ‘Roy’ Uehara
Japan Director

Kazutoshi Tamura
Japan Senior Manager

Aimi Okuno
Japan Manager

Further information on Vialto Partners can be found here: www.vialtopartners.com

Vialto Partners (“Vialto”) refers to wholly owned subsidiaries of CD&R Galaxy UK OpCo Limited as well as the other members of the Vialto Partners global network. The information contained in this document is for general guidance on matters of interest only. Vialto is not responsible for any errors or omissions, or for the results obtained from the use of this information. All information is provided “as is”, with no guarantee of completeness, accuracy, timeliness or of the results obtained from the use of this information, and without warranty of any kind, express or implied, including, but not limited to warranties of performance, merchantability and fitness for a particular purpose. In no event will Vialto, its related entities, or the agents or employees thereof be liable to you or anyone else for any decision made or action taken in reliance on the information in this document or for any consequential, special or similar damages, even if advised of the possibility of such damages.

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Further information on Vialto Partners can be found here: www.vialtopartners.com

Vialto Partners (“Vialto”) refers to wholly owned subsidiaries of CD&R Galaxy UK OpCo Limited as well as the other members of the Vialto Partners global network. The information contained in this document is for general guidance on matters of interest only. Vialto is not responsible for any errors or omissions, or for the results obtained from the use of this information. All information is provided “as is”, with no guarantee of completeness, accuracy, timeliness or of the results obtained from the use of this information, and without warranty of any kind, express or implied, including, but not limited to warranties of performance, merchantability and fitness for a particular purpose. In no event will Vialto, its related entities, or the agents or employees thereof be liable to you or anyone else for any decision made or action taken in reliance on the information in this document or for any consequential, special or similar damages, even if advised of the possibility of such damages.

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