Flat-Amount Cut of Personal Income Tax for Withholding Tax

2024.05.29  [Wed]

Finally, a special fixed-amount income tax credit (“fixed-amount tax reduction”) will be implemented starting with salaries paid in June 2024. Now that we are just a few days away from the start of the program, we would like to provide a brief overview of the system.

1. Eligibility for Flat-Amount Cut of Personal Income Tax for Withholding Tax

Those eligible for the flat-rate tax reduction are residents who have paid income tax for the tax year 2024 and whose total income for the tax year is less than 18.05 million yen (or less than the equivalent of 20 million yen if the taxpayer only has employment income).

2. Flow

(1) Outline

For salaried workers, tax withholding is reduced monthly from the amount of withholding tax on wages and bonuses in June and thereafter under the payroll tax payer (withholding agent) (if the tax is not reduced in June, the tax is reduced sequentially from the following month). (If the withholding tax is not reduced in June, the tax will be reduced sequentially from the following month onward.) If there is a change in dependents by the end of the year, the taxpayer will adjust the tax amount by making a year-end adjustment or filing a final tax return.

The monthly tax reduction will be applied regardless of the total income of salaried workers, and if the total income is expected to exceed 18.05 million yen at the time of year-end adjustment, the tax reduction will be adjusted (for those who are not subject to year-end adjustment, the tax reduction will be adjusted by filing an income tax return).

(2) Monthly Tax Reduction

The actual amount of tax to be withheld is calculated by deducting the amount of monthly tax reduction from the amount of income tax and special income tax for recovery to be withheld from wages or bonuses paid on or after June 1, 2024, for which the payment date is earlier. If the monthly tax reduction exceeds the amount of tax before deductions, the amount of tax not deducted will be carried over to the second and subsequent payments of salary or bonus.

(3) Annual tax reduction

The amount of tax reduction for annual tax adjustment is deducted from the amount of income tax after the special deduction for housing loans, etc. (income tax amount for annual tax adjustment) up to the amount of income tax after the special deduction for housing loans, etc. for each person who is eligible for the deduction.
The amount of annual tax adjustment including special income tax for recovery will be calculated by multiplying the amount of annual tax reduction deducted by 102.1%, and finally, the excess or deficiency between the amount of annual tax adjustment and the total amount of tax withheld at source each month will be settled.

3. Amount of Flat-Amount Cut of Personal Income Tax for Withholding Tax

The amount of tax reduction is the sum of the following amounts.
However, if the total amount exceeds the amount of the person's income tax, the amount of tax credit is limited to the amount of income tax.

(1) The individual (limited to residents): 30,000 yen
(2) Spouse and dependents of the same household (both must be residents) 30,000 yen per person 30,000 yen per person

The same living spouse and dependents eligible for the flat-rate tax reduction are limited to those who are residents. 4.

4. Definitions

(1) Same living spouse

A spouse earning the same living income is a spouse who makes a living together with the income earner who is a resident (excluding a full-time employee of a blue business) and whose total income is 480,000 yen or less.

(2) Dependents

Dependents are relatives of the resident income earner (excluding the resident income earner's spouse), children entrusted to a foster parent, or other family members of the resident income earner. (iii) Children entrusted to foster parents and elderly persons entrusted to foster care trustees who share the same livelihood with the resident (excluding full-time employees of blue business, etc.) (2) A person who has a total income of 480,000 yen or less.

It should be noted that the scope of both a spouse and dependents living together is slightly different from that of a spouse subject to the exemption for spouse and dependents subject to the exemption for dependents.
In addition, the determination of whether a taxpayer qualifies as a spouse and dependents of the same household as a resident taxpayer is based on the current status as of December 31, 2024. However, if the taxpayer himself/herself died or left Japan during the year 2024, the determination will be based on the status as of the time of death or departure (or the time of death of the spouse or relative if he/she was already dead at that time).

This is our introduction to the flat-rate tax reduction that will finally start from the June 2024 payment.
Murata Sogo Tax & Accounting Office is available for consultation regarding the flat-rate tax reduction and related withholding tax calculations in general.
Please feel free to contact us through the inquiry form.

Please feel free to contact us.