A procedure where an employer finalizes the total annual salary and various deductions for employees, settling any excess or shortfall in income tax withheld monthly. Conducted every November-December, this procedure eliminates the need for a final tax return for most salaried employees. Life insurance premium deductions and mortgage deductions (from the second year onward) are also applied through this procedure.
Deductions Applied Through Year-End Adjustment and Required Documents
The main deductions that can be applied through year-end adjustment are: basic deduction, spousal deduction/special spousal deduction, dependent deduction, life insurance premium deduction, earthquake insurance premium deduction, social insurance premium deduction, small enterprise mutual aid premium deduction (including iDeCo), and mortgage deduction (from the second year onward). To receive these deductions, you must fill out and submit three types of forms distributed by your employer: the "Declaration of Dependent Deduction," the "Declaration of Insurance Premium Deduction," and the "Declaration of Basic Deduction, Spousal Deduction, and Income Adjustment Deduction."
Required supporting certificates include life insurance premium deduction certificates, earthquake insurance premium deduction certificates, national pension premium deduction certificates (if applicable), iDeCo contribution payment certificates, and mortgage year-end balance certificates (from the second year onward). These certificates arrive between October and November, so it is practical to file them in a dedicated folder for year-end adjustment as soon as they arrive. If certificates are lost, reissuance can take 2-3 weeks, so early action is necessary.
When to Use Year-End Adjustment vs. Final Tax Return
Certain deductions cannot be processed through year-end adjustment. Medical expense deduction, donation deduction (Furusato Nouzei filed through final tax return), casualty loss deduction, and the first year of mortgage deduction can only be applied through a final tax return. Additionally, those earning over 20 million yen, receiving salary from two or more sources, or having side income exceeding 200,000 yen cannot complete their tax obligations through year-end adjustment alone and must file a final tax return.
Refunds through year-end adjustment are common. Since monthly withholding is estimated without accounting for changes in dependents or insurance premium deductions, applying various deductions during year-end adjustment reduces the tax amount, with the difference refunded by being added to the December or January salary. Conversely, if dependents decreased mid-year or bonuses were large, additional collection may occur. The year-end adjustment results are reflected in the withholding tax certificate, so make it a habit to check the issued certificate for any missed deductions.
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