Taxes Japan 2021: What to Know for This Year's Tax Season
Your increased tax breaks, an extended tax return period, and other tax reforms you will be (generally) happy to hear about regarding taxes in Japan in 2021.
Some good news for taxpayers this year: You get a ¥100,000 increase in the basic tax deduction given to all taxpayers, plus an extra 30 days to file your tax report on the income you earned last year.
Additionally, this article covers updates to the blue tax form deductions and other tax-related reforms you should know about.
Here are the essential takeaways regarding income you have earned in 2020 (Reiwa 2), which you will be reporting during this year's tax season 2021 (Reiwa 3).
Extension of tax filing period
During a typical year, the tax season is approximately one month, starting from February 16 to March 15. During this time, tax offices accept tax return filings from individuals, the government's e-Tax site accepts submissions, and city offices typically have support desks and phone numbers staffed, especially for this 30-day period.
However, this year 2021 (Reiwa 3), in efforts to curb congestion at tax offices, the government has lengthened the tax reporting season from March 15 to April 15, giving everyone an additional 30 days to file their tax report on last year's income. At present, the updated tax filing window is February 16 to April 15.
Note: Tax reports that are filed after April 15 will be considered delinquent, and a delinquency tax may be levied.
Amendments to blue tax declaration deduction
The "blue" tax declaration form is a tax return method that provides a special deduction for those who operate businesses in Japan and who have (1) registered the opening of their business (kaigyotodoke) and (2) applied to use the blue tax form (aoiroshinkoku shounin shinseisho).
Previously, blue tax form filers could expect a ¥650,000 tax cut from their taxable income. However, this year, the blue tax deduction has been changed in the following ways:
The blue tax declaration form’s basic deduction has been lowered from ¥650,000 to ¥550,000 for those who send in their tax reports via Japan Post or who deliver them in-person to a tax office.
The blue tax declaration form’s deduction of ¥650,000 will remain unchanged for those who file via the e-Tax site (and related digital avenues) or for those who are using electronic bookkeeping and have applied to use this method in advance.
The e-Tax system, a method of filing one's taxes online, has been in existence since 2004, yet many Japanese businesses still file taxes via paper. Japan's government instigated this reform in an effort to promote the widespread use of the e-Tax system.
The takeaway here: If you want the biggest tax break when filing with a blue tax form, then learn how to file via the e-Tax site.
A trusted bilingual accounting firm in Tokyo can be the difference between a smooth tax season or one fraught with worry.
Basic tax deduction, increased by ¥100,000
In most cases, the basic tax deduction given to all taxpayers will increase by ¥100,000.
Previously, the "basic individual deduction" allowed income earners to deduct ¥380,000 per year from their taxable income. This tax reform means income earners will now be able to deduct ¥480,000 from their taxable income.
At the same time, those with an annual income of ¥25 million or more will not be eligible for any basic individual deduction. Previous to this, there was no income cap at which one could apply for the basic individual deduction, allowing high-income earners to benefit from this tax break.
Essentially, this amendment is a beneficial tax cut for those who are earning less than ¥25 million and a tax hike for those who are earning more than ¥25 million.
Deductions for salary workers and dependents
Salary workers who have an annual income of ¥8.5 million or less are also permitted to claim the new tax break to one's annual income. However, salary workers who earn more than ¥8.5 million per year may experience a tax increase, depending on their earning bracket and whether they qualify for further income adjustment deductions. (See "Overview of the deduction for employment income," National Tax Agency, English page.)
For those who have dependents or a spouse that meets the qualifying parameters (NTA, Japanese site), the criterion for total income for dependent spouses has been adjusted from ¥380,000 or less (before amendment) to ¥480,000 or less (after the amendment).
The special spouse deduction, in which the primary income earner can receive certain tax breaks, has also been amended to reflect the recent slate of changes, and the special spousal’s qualifying income for the deduction will be adjusted as follows:
Prior to the tax reform: ¥380,000 to ¥1.23 million or less.
After the tax reform: ¥480,000 to ¥1.33 million or less.
This change to the income deduction criteria is meant to reduce the tax burden of households where one working spouse is not a primary income earner.
New guidelines for single-parent deductions
In the past, single-parent tax breaks were given only to those who could prove a marriage history.
In fact, single-parent tax deductions were listed on the tax form as "widow deductions,” and proof of one's past marriage was a prerequisite to receiving tax breaks for single parents. There were no exceptions made for those who had a child outside of marriage.
New amendments now allow for receiving a single-parent tax break regardless of whether you have a marriage history or not.
When filing reports this year, irrespective of whether or not a single parent has been married, a single parent with an income of ¥5 million or less can apply for a single-parent deduction of ¥350,000 to their taxable income.
References: "Points that have changed from the previous tax year," National Tax Agency (translated title, Japanese page), accessed February 15, 2021. Additionally, NTA has published an English-language guide (PDF) that provides details on the final tax return process itself.
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