Year-end adjustment glossary

This page provides simple explanations regarding the year-end adjustment such as the meanings and purposes of its terminology and system, as well as the documents required for the procedures.

If you wish to see more detailed information about this topic, please refer to the information page from the National Tax Agency. The information on this page is updated every year around the end of September. Page containing detailed information about year-end adjustment (Japanese) ｜ National Tax Agency

The key points concerning this year’s tax reforms are explained in the SmartHR Mag. article. There are only three changes for the 2023 year-end adjustment! Including preliminary explanations for applicable content in 2024 (Japanese) ｜ SmartHR Mag.

Basic terminology

Income

This refers to the salary and bonus received from a company when working at a company, and the revenue from a store when self-employed and running a store or similar business.

Income also includes profit due to payment in the form of company housing, food, gift vouchers, and other non-monetary payments.

Earnings

“Earnings” is the amount after subtracting necessary expenses from income.

When working at a company, the monetary amount that results after subtracting the employment earnings deductible amount, the earnings amount adjustment deductible amount and the specified expenditure deductible amount from the income received from the company (the salary and bonus) is called “employment earnings.”

Required expenses

“Required expenses” are expenses incurred either directly or indirectly in order to earn income.

For details, please see No. 2210 Easy-to-understand information about required expenses (Japanese) | National Tax Agency.

Withholding tax

Earners must calculate, declare and then pay their own tax amount based on that year's earnings.

When an earner is working at a company, the company that pays their salary subtracts the income tax from the employee’s salary and then pays it to the government on behalf of the employee.

This is referred to as "withholding tax."

Year-end adjustment

The amount of income tax, etc. withheld as tax from one year’s salary and bonus paid to the employee by the company is checked against the annual amount of tax that the employee needs to pay, and the procedure to adjust any excess or deficiency is referred to as “year-end adjustment.”

An explanation is provided under “Types of deduction applications created during SmartHR year-end adjustment” on this page about documents to submit to declare the deductible amount.

Final tax return

While the year-end adjustment provides an exact calculation of the income tax for employment earnings, the final tax return provides an exact calculation of the income tax for all earnings that occurred in that year.

In principle, earners must file a final tax return. However, when working at a company, the year-end adjustment is used instead, which means that many people do not need to file a final tax return.

For details on cases in which you need to file a final tax return, please see No. 2020 Final tax return (Japanese) | National Tax Agency .

Deductions

This word means "subtracting a fixed monetary amount from a certain amount."

Correctly declaring deductions may reduce the amount of income tax and inhabitant tax you have to pay.

An explanation is provided under “Types of deductions” on this page about the types of deductions related to the year-end adjustment.

Dependent relatives

A dependent relative is a person who meets all the requirements below as of December 31 of that year.

• A relative other than a spouse (a relative by blood within the 6th degree and a relative by affinity within the 3rd degree), or a child you have been charged to raise by the prefectural governor (meaning a foster child), or an elderly person you have been charged to care for by the mayor of the municipality
• You (the taxpayer) and your spouse share living expenses
• Your spouse’s annual total earnings amount is 480,000 yen or less (Employment income is 1.03 million yen or less)
• Your spouse has never received payment in salary even once during that year as a family employee of a blue return taxpayer, or they are not a family employee of a white return taxpayer

*For details, please see No. 1180 Dependent deductions (Japanese) ｜ National Tax Agency.

A spouse sharing living expenses

This refers to "a spouse who meets all the requirements below as of December 31 of that year" under the Income Tax Act.

A person with a common-law marriage status is not considered to be a spouse.

• You (the taxpayer) and your spouse share living expenses
• Your spouse's annual total earnings amount is 480,000 yen or less
• Your spouse has never received payment in salary even once during that year as a family employee of a blue return taxpayer, or they are not a family employee of a white return taxpayer

For details, please see A spouse sharing living expenses with you (Japanese) | National Tax Agency.

A spouse who qualifies for tax deductions

“A spouse who qualifies for tax deductions” applies to you (the person receiving the deduction) if your total earnings amount is 10 million yen or less and all of the following are applicable as of December 31.

• Your spouse is recognized by the provisions of the Civil Code (people in common-law relationships are not eligible)
• You (the taxpayer) and your spouse share living expenses
• Your spouse’s annual total earnings amount is 480,000 yen or less (Employment income is 1.03 million yen or less)
• Your spouse has never received payment in salary even once during that year as a family employee of a blue return taxpayer, or they are not a family employee of a white return taxpayer

For details, please see A spouse who qualifies for tax deductions (Japanese) | National Tax Agency.

A spouse who qualifies for elderly deductions

This refers to a spouse who qualifies for deductions and is “70 years or older as of December 31 of that year.”

For details, please see A spouse who qualifies for elderly deductions (Japanese) | National Tax Agency.

A spouse who qualifies for tax deduction at the source

If your total earnings amount is 9 million yen or less (employment income is 10.95 million yen or less) and your spouse meets the following requirements. they are referred to as “A spouse who qualifies for tax deduction at the source.”

• You (the taxpayer) and your spouse share living expenses
• Your spouse’s annual total earnings amount is 950,000 yen or less (Employment income is 1.5 million yen or less)
• Your spouse has never received payment in salary even once during that year as a family employee of a blue return taxpayer, or they are not a family employee of a white return taxpayer

Information for a spouse who qualifies for tax deduction at the source must be listed in the "Application for (Change in) Exemption for Dependents of Employment Income Earner." However, this has no direct effect on the exact calculation of the year-end adjustment. *It is used to withhold tax from an employee’s salary and bonus paid by a company.

Types of deductions

Basic deductions

This deduction is applied to all people with a total earnings amount of 25 million yen or less.

Basic deductions can be declared by listing the required information in the "Application for Basic Exemption of Employment Income Earner and Application for Exemption for Spouse of Employment Income Earner and Application for Exemption of Amount of Income Adjustment."

Your total earnings amount	Deductible amount
24 million yen or less	480,000 yen
Between 24 million yen and 24.5 million yen inclusive	320,000 yen
Between 24.5 million yen and 25 million yen inclusive	160,000 yen
Over 25 million yen	0 yen

*For details, please see No. 1199 Basic deductions (Japanese) ｜ National Tax Agency.

Employment earnings deductions

This calculates the amount corresponding to expenses and deducts it based on the income amount from payments such as your salary and bonus.

The formula for calculating the employment earnings deductible amount is shown below.

Income amount from payments such as your salary	Formula for calculating the employment earnings deductible amount, or the deductible amount
1.625 million yen or less	Deductible amount of 550,000 yen
Between 1.625 million yen and 1.8 million yen inclusive	Income amount x 40％ - 100,000 yen
Between 1.8 million yen and 3.6 million yen inclusive	Income amount x 30％ + 80,000 yen
Between 3.6 million yen and 6.6 million yen inclusive	Income amount x 20％ + 440,000 yen
Between 6.6 million yen and 8.5 million yen inclusive	Income amount x 10％ + 1.1 million yen
Over 8.5 million yen	Deductible amount of 1.95 million yen (maximum amount)

*For details, please see No. 1410 Employment earnings deductions (Japanese) ｜ National Tax Agency.

Spouse exemptions

This deduction can be received based on your total earnings amount if you have a spouse who qualifies for tax deductions.

When the total earnings amount of the householder who will perform year-end adjustment is over 10 million yen, they cannot receive exemption for spouses.

Exemption for spouses can be declared by listing the required information in the "Application for Basic Exemption of Employment Income Earner and Application for Exemption for Spouse of Employment Income Earner and Application for Exemption of Amount of Income Adjustment."

Your total earnings amount	Deductible amount
	A spouse who qualifies for tax deductions	A spouse who qualifies for elderly deductions
9 million yen or less	380,000 yen	480,000 yen
Between 9 million yen and 9.5 million yen inclusive	260,000 yen	320,000 yen
Between 9.5 million yen and 10 million yen inclusive	130,000 yen	160,000 yen

*For details, please see No. 1191 Spouse exemptions (Japanese) ｜ National Tax Agency.

Special exemption for spouses

Even if you cannot receive exemption for spouses, you may be able to receive a fixed amount of deduction based on your spouse's earnings amount.

This is referred to as "special exemption for spouses."

The requirements for special exemption for spouses are shown below. *Bold text indicates the requirements that are different from exemption for spouses.

• You (the taxpayer) and your spouse share living expenses
• Their annual total earnings amount is more than 480,000 yen and 1.33 million yen or less inclusive
• Your spouse has never received payment in salary even once during that year as a family employee of a blue return taxpayer, or they are not a family employee of a white return taxpayer
• Special exemption for spouses has not been applied to your spouse

Special exemption for spouses can be declared by listing the required information in the "Application for Basic Exemption of Employment Income Earner and Application for Exemption for Spouse of Employment Income Earner and Application for Exemption of Amount of Income Adjustment."

In addition, when the total earnings amount of the householder who will perform year-end adjustment is over 10 million yen, they cannot receive special exemptions for spouses.

Also, a person with a common-law marriage status is not considered to be a spouse.

Spouse's total earnings amount	Your total earnings amount and corresponding deductible amount
	9 million yen or less	Between 9 million yen and 9.5 million yen inclusive	Between 9.5 million yen and 10 million yen inclusive
Between 480,000 yen and 950,000 yen inclusive	380,000 yen	260,000 yen	130,000 yen
Between 950,000 yen and 1 million yen inclusive	360,000 yen	240,000 yen	120,000 yen
Between 1 million yen and 1.05 million yen inclusive	310,000 yen	210,000 yen	110,000 yen
Between 1.05 million yen and 1.1 million yen inclusive	260,000 yen	180,000 yen	90,000 yen
Between 1.1 million yen and 1.15 million yen inclusive	210,000 yen	140,000 yen	70,000 yen
Between 1.15 million yen and 1.2 million yen inclusive	160,000 yen	110,000 yen	60,000 yen
Between 1.2 million yen and 1.25 million yen inclusive	110,000 yen	80,000 yen	40,000 yen
Between 1.25 million yen and 1.3 million yen inclusive	60,000 yen	40,000 yen	20,000 yen
Between 1.3 million yen and 1.33 million yen inclusive	30,000 yen	20,000 yen	10,000 yen

*For details, please see No. 1195 Special exemption for spouses (Japanese) ｜ National Tax Agency.

Dependent deductions

This deduction can be received if you have a dependent relative under the tax act.

Dependent deductions can be declared by listing the required information in the "Application for (Change in) Exemption for Dependents of Employment Income Earner."

Classification		Deductible amount
General dependent relatives who qualify for deductions *1		380,000 yen
Specified dependent relatives *2		630,000 yen
Elderly dependent relatives *3	People other than elderly parents, etc. living together with you	480,000 yen
	Elderly parents, etc. living together with you *4	580,000 yen

*1: A dependent relative who is 16 years or older as of December 31 of that year.

*2: A dependent relative who qualifies for deductions and is between 19 and 23 years of age as of December 31 of that year.

*3: A dependent relative who qualifies for deductions and is 70 years or older as of December 31 of that year.

*4: “Elderly parents, etc. living together with you” refers to an elderly dependent relative who usually lives with you and is your or your spouse’s parents or grandparents, etc. If the elderly relative has been hospitalized for a long time to receive treatment, the elderly relative is considered to be living together with you. However, if the elderly relative has entered a retirement home or similar establishment, then they have a different address to you and so are not applicable for deductions.

*For details, please see No. 1180 Dependent deductions (Japanese) ｜ National Tax Agency.

Earnings amount adjustment deductions

These are the deductions you can declare for both you and your spouse when that year’s income amount is over 8.5 million yen and any of the following requirements apply.

The person sharing living expenses with you or the dependent relative can be declared as being eligible for earnings amount adjustment deductions even if they are supported by an income earner other than you.

• You are a person with special disabilities
• A spouse sharing living expenses with you is a person with special disabilities
• The dependent relative is a person with special disabilities
• The dependent relative is under 23 years old

Earnings amount adjustment deductions can be declared by listing the required information in the "Application for Basic Exemption of Employment Income Earner and Application for Exemption for Spouse of Employment Income Earner and Application for Exemption of Amount of Income Adjustment."

Formula for calculating earnings amount adjustment deductions

[Amount of income such as from employment (If over 10 million yen, then 10 million yen) - 8.5 million yen] x 10%

*For details, please see No. 1411 Earnings amount adjustment deductions (Japanese) ｜ National Tax Agency.

Disabilities deductions

This deduction can be received if you (the householder) or a spouse or dependent relative who you are sharing living expenses with has a disability.

This can also be applied to dependent relatives under the age of 16 as long as the following requirements are met.

Disability certificate/handbook, etc.	Persons with special disabilities	Persons with disabilities in general
Physical disability certificate	Grade 1 and 2	Grade 3 to 6
Mental disability certificate	Grade 1	Grade 2 and 3
Intellectual disability certificate (Mental rehabilitation certificate)	A	B
A person who is bedridden	Applicable	-

Disabilities deductions can be declared by listing the required information in the "Application for (Change in) Exemption for Dependents of Employment Income Earner."

Category	Deductible amount
Persons with disabilities in general	270,000 yen
Persons with special disabilities	400,000 yen
Person with special disabilities who is living with you*	750,000 yen

*Persons with special disabilities who are living with you refers to a person who lives with you, is either a spouse or a dependent relative sharing living expenses with you, or a relative who is sharing living expenses with you or your spouse, and who qualifies as a person with special disabilities.

*For details, please see No. 1160 Disabilities deductions (Japanese) ｜ National Tax Agency.

Working student deductions

This deduction can be received when you are attending a school while holding a job.

It can be received when all of the following apply as of December 31 of that year.

• You have earnings from working such as employment earnings
• Your total earnings amount is 750,000 yen or less and earnings from other than earnings from working as mentioned above is 100,000 yen or less
• You are a student at a specific school

Working student deductions can be declared by listing the required information in the "Application for (Change in) Exemption for Dependents of Employment Income Earner."

Category	Deductible amount
Working student deductions	270,000 yen

*For details, please see No. 1175 Working student deductions (Japanese) ｜ National Tax Agency.

Single parent deductions

This deduction can be received if you are raising children by yourself, regardless of your gender and marital status.

It can be received when all of the following apply as of December 31 of that year.

• You are not in a common-law marriage
• You have children with which you are sharing living expenses *Children in this case is limited to people with a total earnings amount of 480,000 yen or less for that year, and who are not a spouse or dependent relative sharing the same household income with another person.
• Your total earnings amount is 5 million yen or less

Single parent deductions can be declared by listing the required information in the "Application for (Change in) Exemption for Dependents of Employment Income Earner."

Category	Deductible amount
Single parent deductions	350,000 yen

*For details, please see No. 1171 Single parent deductions (Japanese) ｜ National Tax Agency.

Widow deductions

This deduction can be received if you have not remarried after divorcing or after your husband has passed away, and if it is unclear if your husband is dead or alive.

You can receive this deduction when the following apply as of December 31 of that year.

In addition, persons in a common-law marriage do not qualify for this deduction.

• You have not remarried since divorcing from your spouse, you have dependent relatives (who are not a spouse or dependent relative sharing the same household income with another person), and your total earnings amount is 5 million yen or less
• You have not remarried after your spouse passed away, or it is unclear if your spouse is dead or alive, and your total earnings amount is 5 million yen or less

Widow deductions can be declared by listing the required information in the "Application for (Change in) Exemption for Dependents of Employment Income Earner."

Category	Deductible amount
Widow deductions	270,000 yen

*For details, please see No. 1170 Widow deductions (Japanese) ｜ National Tax Agency.

Insurance premium deductions

This deduction can be received based on the insurance premium paid in that year.

During the year-end adjustment, you can declare four types of insurance premiums, including life insurance premiums, earthquake insurance premiums, social insurance premiums, and small business mutual aid premiums.

Life insurance premium deductions

You can receive deductions for a life insurance premium, nursing care insurance premium and personal pension premium.

The maximum total deductible amount for all three is 120,000 yen.

For details, please see No. 1140 Life insurance premium deductions (Japanese) ｜ National Tax Agency.

Earthquake insurance premium deductions

You can receive deductions for earthquake insurance premiums and casualty insurance premiums (with requirements) related to certain long-term casualty insurance contracts, etc.

The maximum deductible amount is 50,000 yen.

For details, please see No. 1145 Earthquake insurance premium deductions (Japanese) ｜ National Tax Agency.

Social insurance premium deductions

The full amount paid for a social insurance premium by either you, a spouse, or a dependent relative who is sharing living expenses with you is deducted.

There is no need to list your social insurance premium (the amount deducted from your salary) in documents that are submitted during the year-end adjustment.

For details, please see No. 1130 Social insurance premium deductions (Japanese) ｜ National Tax Agency.

Small business mutual aid premium deductions

The full amount paid for a small business mutual aid premium, a defined contribution pension, or a mutual aid premium for supporters of people with physical and intellectual disabilities is deducted.

For details, please see No. 1135 Small business mutual aid premium deductions (Japanese) ｜ National Tax Agency.

Types of deduction applications created during SmartHR year-end adjustment

Application for (Change in) Exemption for Dependents of Employment Income Earner

Information about the salary received from a company is filled in this document to receive the following deductions.

• Dependent deductions
• Disabilities deductions
• Widow deductions
• Single parent deductions
• Working student deductions

The name of this application form is sometimes abbreviated and referred to as "Marufu."

Application for Basic Exemption of Employment Income Earner and Application for Exemption for Spouse of Employment Income Earner and Application for Exemption of Amount of Income Adjustment

Information about the salary received from a company is filled in this document to receive the following deductions.

• Basic deductions
• Exemption for spouses/Special exemption for spouses *Both of these deductions cannot be received at the same time
• Earnings amount adjustment deductions

Application for Deduction for Insurance Premiums for Employment Income Earner

Information about the salary received from a company is filled in this document to receive the following deductions.

• Life insurance premium deductions
• Earthquake insurance premium deductions
• Social insurance premium deductions
• Small business mutual aid premium deductions

There is no need to fill out this application form if you do not have life insurance, earthquake insurance, small business mutual aid, etc.

The name of this application form is sometimes abbreviated and referred to as "Maruho."

Application for Special Credit for Loans, etc. Related to a Dwelling (Specific Additions or Improvements, etc.) for Employment Income Earner

Information about the salary received from a company is filled in this document to receive housing loan deductions.

Since it is not possible to perform year-end adjustment in the first year you receive housing loan deductions, you must file a final tax return.

You can continue to receive deductions using the year-end adjustment from the following year after filing the final tax return.

If qualifying for this from 2020, the document name is “Application for Special Credit for Loans, etc. Related to a Dwelling (Specific Additions or Improvements, etc.) for Employment Income Earner and Detailed Statement and Calculation Form for Special Credit for Loans, etc. Related to a Dwelling (Specific Additions or Improvements, etc.).”

Other terminology

Joint liability

When taking out a housing loan, one person is the main debtor while another person is designated as the joint debtor.

Example: When buying a property worth 50 million yen

• The husband borrows 50 million yen as the main debtor
• The wife is the joint debtor

For the above joint liability case, the married couple are both responsible for repaying the loan as debtors, which means that both the husband and the wife can apply for a housing loan deduction.

If the wife is a "joint guarantor," the wife is not a debtor and so she cannot apply for a housing loan deduction.

Joint home loan

When taking out a housing loan, both parties take out the housing loan and are designated as a joint guarantor for each other.

Example: When buying a property worth 50 million yen

• The husband and wife each borrow 25 million yen
• They are a joint guarantor for each other

For the above joint home loan case, the married couple are both responsible for repaying the loan as debtors, which means that both the husband and the wife can apply for a housing loan deduction.