Retirement income tax
The retirement deduction, one-half treatment, service years, and the withholding declaration.
Retirement income is taxed favorably: subtract the retirement-income deduction (¥400,000 per service year, more after 20 years) from the payment and tax one-half of the rest — separately from your other income — provided you file the retirement-income declaration.
Effective: 2026-01-01 to 2026-12-31
Professional review pending — treat as draft and confirm with the authorities.
Key points
- Deduction: ¥400,000/service year (¥800,000 min ≤20 years).
- Above 20 years: ¥8M + ¥700,000/extra year.
- Only one-half of the excess is taxed; it is separate from other income.
- File the retirement-income declaration or 20.42% is withheld.
The calculation
Compute the retirement-income deduction from years of service: ¥400,000 per year (minimum ¥800,000 for 20 years or less), then ¥8,000,000 plus ¥700,000 per year above 20. Subtract it from the retirement payment and take one-half. For 25 years and a ¥15,000,000 allowance: deduction ¥11,500,000, so (¥15,000,000 − ¥11,500,000) × 1/2 = ¥1,750,000 of retirement income, taxed separately.
Declaration and special rules
File the retirement-income declaration with the payer so the correct favorable amount is withheld; otherwise 20.42% is withheld and you file to reconcile. Short-service and short-service-director payments have rules that reduce the one-half benefit, and multiple retirement payments (including DC/iDeCo lump sums) interact through the service-year rules.
Who this is for
- People receiving a retirement payout
- DC/iDeCo lump-sum recipients
What this is not
- Ordinary salary or pension income
- Multiple retirement payments interact on the deduction; model the timing (see iDeCo timing).
Frequently asked questions
Do I need to file a tax return in Japan?
Many employees do not, because tax is settled by year-end adjustment (年末調整). You generally must file (確定申告) if you have side income over ¥200,000, two or more employers, self-employment income, sizeable investment or crypto gains, or you want to claim deductions like large medical costs or a first-year mortgage credit. Filing season is Feb 16 – Mar 15 via e-Tax. When unsure, check the NTA guidance or ask a 税理士.