Severance and retirement allowance tax
The retirement-income deduction, one-half treatment, the withholding declaration, and short-service rules.
A qualifying retirement allowance is taxed favorably: subtract the retirement-income deduction (¥400,000 per service year, more after 20 years), take one-half, then tax that — but if you do not file the retirement-income declaration, a flat 20.42% is withheld and must be reconciled.
Effective: 2026-01-01 to 2026-12-31
Professional review pending — treat as draft and confirm with the authorities.
Key points
- Deduction: ¥400,000 per service year (¥800,000 minimum up to 20 years).
- Above 20 years: ¥8M + ¥700,000 per extra year.
- Only one-half of the excess is taxed (ordinary case).
- File the retirement-income declaration or 20.42% is withheld.
How it is calculated
The retirement-income deduction is ¥400,000 per year of service, with an ¥800,000 minimum for 20 years or less, and ¥8,000,000 plus ¥700,000 for each year beyond 20. You subtract it from the allowance and generally tax one-half of the remainder. For 25 years of service the deduction is ¥8,000,000 + ¥700,000 × 5 = ¥11,500,000; a ¥15,000,000 allowance gives (¥15,000,000 − ¥11,500,000) × 1/2 = ¥1,750,000 of retirement income.
The declaration and exceptions
If you submit the retirement-income declaration to the payer, they withhold the correct favorable amount and usually no further filing is needed. If you do not, 20.42% is withheld and you must file to reconcile. Short-service and short-service-director payments have anti-favorable-treatment rules that reduce or remove the one-half benefit, and multiple retirement payments interact.
Who this is for
- People receiving a retirement allowance
- Employees planning a departure
What this is not
- iDeCo/DC lump-sum timing (see the retirement guides)
- Always submit the retirement-income declaration to avoid 20.42% over-withholding.
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.