A system where the payer of salary or compensation withholds income tax at the time of payment and remits it to the government. For salaried employees, estimated income tax is deducted from monthly salary, with any excess or shortfall settled through year-end adjustment. Withholding also applies to certain payments to freelancers, requiring settlement through a final tax return.
How Withholding Tax Works and Applicable Income Types
Withholding tax is a mechanism of "deducting tax at the time of payment," established to ensure stable government tax revenue. The main types of income subject to withholding are salary income, retirement income, interest income, dividend income, and fees/compensation (manuscript fees, lecture fees, payments to lawyers and tax accountants, etc.). For salary income, the monthly withholding amount is determined based on the "Withholding Tax Table for Employment Income." The more dependents you have, the lower the withholding amount.
Withholding tax also applies to certain compensation received by freelancers and side workers. Manuscript fees and design fees are subject to withholding at 10.21% of the payment amount (20.42% for the portion exceeding 1 million yen). This withheld amount is settled through the final tax return, and if the annual income tax is less than the withheld amount, the difference is refunded. Since withholding tax certificates and payment records are needed for the final tax return, be sure to keep them safely when they arrive at year-end.
How to Read a Withholding Tax Certificate and Key Points to Check
The withholding tax certificate is a document issued by your employer after year-end adjustment, showing the total annual salary, various deduction amounts, and the withholding tax amount for the year. The four key items to check are "payment amount" (total annual salary), "amount after employment income deduction" (employment income), "total amount of income deductions" (sum of all deductions), and "withholding tax amount" (annual income tax).
The withholding tax certificate is needed in various situations including Furusato Nouzei deduction ceiling simulations, mortgage loan applications, and nursery school enrollment applications. If you change jobs, you need to submit the withholding tax certificate from your previous employer to your new employer for combined year-end adjustment. If lost, you can request reissuance from the issuing company, but if the company has gone bankrupt, you must file a "Notice of Non-Issuance of Withholding Tax Certificate" at the tax office and handle it through a final tax return. With digitalization progressing, more companies now support electronic issuance, so saving it as a PDF makes management easier.
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