How to Calculate Your Furusato Nozei Limit: The Formula From Resident Tax's Income-Based Portion

The tax you get back from furusato nozei comes in 3 parts

With furusato nozei, your donation to a municipality minus 2,000 yen is taken off your income tax and resident tax. As the Ministry of Internal Affairs and Communications explains, the reduction is split into the following 3 parts.

Together, the 3 parts are designed to equal (donation − 2,000 yen) × 100% at any income tax rate. People who get less back through income tax have a larger special portion, and people who get more back have a smaller one, so the total comes to exactly the donation minus 2,000 yen.

But only the special portion has a cap, "up to 20% of the resident tax income-based portion". As you raise your donation, the special portion eventually reaches that 20%, and beyond it the total falls short of the donation minus 2,000 yen. The donation at this boundary is what's called the deduction limit: the largest donation that keeps your out-of-pocket cost at 2,000 yen.

The deduction limit formula and special portion rates by income tax rate

Writing out the donation at which the special portion just reaches its cap gives: deduction limit = resident tax income-based portion × 20% ÷ (90% − income tax rate × 1.021) + 2,000 yen. The 1.021 accounts for the special reconstruction income tax (2.1% of income tax). The denominator, 90% − income tax rate × 1.021, is the special portion's deduction rate, which takes the following values by income tax rate.

The higher your income tax rate, the lower the special portion's deduction rate, so the same income-based portion gives a larger limit. For an employee at a 10% income tax rate, a rough guide is about one-quarter of the income-based portion plus 2,000 yen.

A hand calculation for a single employee earning 5 million yen

Here's a step-by-step calculation for an employee under 40 in the Tokyo branch of Kyokai Kenpo, earning 5 million yen (salary only) with no dependents. Social insurance premiums, the employee's share of health insurance, employees' pension and employment insurance, are 721,460 yen a year.

1. 1

   Find employment income

   5 million yen salary − 1.44 million yen employment income deduction = 3.56 million yen. This is total income.

2. 2

   Find resident tax's taxable income

   3.56 million yen − 721,460 yen in social insurance premiums − 430,000 yen resident tax basic deduction = 2,408,000 yen (dropping amounts under 1,000 yen).

3. 3

   Find the resident tax income-based portion

   2,408,000 yen × 10% − 2,500 yen adjustment deduction = 238,300 yen. This is the income-based amount on your resident tax notice.

4. 4

   Find the special portion's cap

   238,300 yen × 20% = 47,660 yen. The special portion can't go above this.

5. 5

   Determine the income tax rate

   2,408,000 yen − 50,000 yen personal deduction difference adjustment = 2,358,000 yen. This is over 1.95 million yen and no more than 3.3 million yen, so the income tax rate is 10% and the special portion's deduction rate is 79.79%.

6. 6

   Find the limit

   47,660 yen ÷ 79.79% = 59,731 yen. Adding 2,000 yen gives a deduction limit of 61,731 yen, or 61,000 yen if you drop amounts under 1,000 yen as portal sites do.

Donate exactly 61,731 yen using the one-stop exception, and the next fiscal year's resident tax is reduced by a total of 59,730 yen: a basic portion of 5,973 yen, a special portion of 47,659 yen and a special filing deduction of 6,098 yen. Your out-of-pocket cost is 2,001 yen. The calculation of the income-based portion and social insurance premiums themselves is explained in detail in how to calculate income tax and resident tax.

How much your out-of-pocket cost grows above the limit

Above the limit, the special portion stops growing, so the deduction grows only by the 10% basic portion (plus the income tax part if you file a tax return). For the single person earning 5 million yen, using the one-stop exception, the out-of-pocket cost is as follows.

By law, return gifts must be worth no more than 30% of the donation. Even if a gift were worth exactly 30%, in this example the out-of-pocket cost overtakes the gift's value at around 30,000 yen over the limit. Actual gifts are often worth less than 30%, so it's safer to stay a little below your calculated limit rather than right at it.

• Going over doesn't reduce the deduction to zero; about 10% of the excess still comes back
• The 2,000-yen out-of-pocket cost applies only once a year, regardless of how many places you donate to
• If you have business or real estate income, your income-based portion differs from the salary-only case, so include that income in the calculation

Check your limit and breakdown with the simulator

In the Find my limit tab of the Furusato Nozei Deduction Limit Simulator, enter your salary and family structure. It shows your guideline and calculated deduction limits, the resident tax income-based portion, the special portion's cap (20% of the income-based portion), and the income tax rate and deduction rate used for the special portion. You can check each figure from the hand calculation above directly.

Below the results, a bar chart shows how much comes back from income tax and from resident tax's basic and special portions if you donate up to the limit, along with a table of out-of-pocket costs for going 10,000, 30,000 and 50,000 yen over. If you have your withholding slip, switching social insurance to the amount on the slip and entering that figure makes the result more accurate than the automatic calculation. For a quick look at limits by salary and family structure, see also the limit table by salary and family.

FAQ

How do I calculate my furusato nozei limit?

Resident tax income-based portion × 20% ÷ (90% − income tax rate × 1.021) + 2,000 yen. For a single employee earning 5 million yen, the income-based portion is 238,300 yen and the income tax rate is 10%, so 238,300 yen × 20% ÷ 79.79% + 2,000 yen = a limit of 61,731 yen.

Can I find my limit from the income-based amount on my resident tax notice?

Yes. At a 10% income tax rate, a rough guide is about 25% of the income-based portion plus 2,000 yen. But the amount on the notice is based on the previous year's income, so if your salary changes greatly this year, recalculate with this year's estimate.

Do I lose out if I go slightly over the limit?

Only about 10% of the excess comes back, so your out-of-pocket cost rises by that much. For the single person earning 5 million yen, limit + 10,000 yen means 10,342 yen out of pocket. Counting the gift's value, you don't lose out right away, but it reverses at around limit + 30,000 yen.

What is the 1.021 in the special portion's deduction rate?

It's for the special reconstruction income tax. Until 2037, a surtax of 2.1% of income tax is added, so the share returned through income tax is income tax rate × 1.021. The special portion fills in the rest, so its rate is 90% minus income tax rate × 1.021.