Japan's Retirement Income Declaration Form: Skip It and 20.42% Is Withheld

The form lets your company calculate the retirement income deduction

The Declaration on Receipt of Retirement Income is a form the person receiving severance submits to the company paying it. Based on the form, the company works out the correct income tax and resident tax with your years of service and retirement income deduction reflected, then withholds and pays that tax from your severance.

• Submit to: the company paying the severance (not the tax office or your municipality)
• Deadline: by the time the severance is paid
• Main items: name, address, My Number, period of service, and whether you're leaving because of a disability
• If you received other severance or a lump sum from iDeCo or a corporate DC plan that year or in the past: the amount paid and the period of service

At many companies, the form comes with your other leaving paperwork. Fill it in and send it back, and the company does the calculation from there.

If you submit it: withholding settles the tax

With the form on file, the correct income tax (including the special reconstruction income tax) and resident tax are deducted when you receive the severance, and that settles the tax on it. You generally don't need to file a return. Nor will you get a resident tax bill for it the following year, as you do with salary.

The amount deducted is calculated by subtracting the retirement income deduction, halving the rest, and applying the tax rates. You can check the amounts in the table by severance amount and years of service.

If you don't: 20.42% of your severance is withheld

Without the form, your company can't reflect your years of service, so it withholds a flat 20.42% (20% income tax plus special reconstruction income tax) of the severance with no deduction. In most cases that's far more than the tax you actually owe.

When a tax return is required or worthwhile

• You didn't submit the form and 20.42% was withheld (filing returns the difference)
• You left partway through the year, didn't take a new job, and never had your salary go through year-end adjustment (income tax on the salary is often refunded)
• Your salary that year was low, so the basic deduction, social insurance deduction and so on can't be fully used against it (the unused part can be taken from retirement income)
• You want to use deductions that year-end adjustment doesn't handle, such as the medical expense deduction or furusato nozei

To include retirement income in a tax return, use Table 3 of the return (for separately taxed income). Copy the amount paid and the tax withheld from your retirement income withholding slip, then work out and enter your retirement income deduction.

What to check on the retirement income withholding slip

Within 1 month of your leaving, your company issues a Retirement Income Withholding Slip and Special Collection Slip. It's a separate document from your salary withholding slip.

• Amount paid: your gross severance
• Tax withheld: income tax deducted (including special reconstruction income tax)
• Special collection tax: resident tax deducted (municipal and prefectural)
• Retirement income deduction and years of service: the years used in the calculation

If the tax withheld is 20.42% of the amount paid, your form wasn't reflected. If the years of service aren't what you expected, check how years of service are counted and then ask your company. For the bigger picture on resident and income tax after leaving, see the difference between income tax and resident tax.

If you realize you forgot to submit it

1. 1

   You haven't received the severance yet

   Submit the form to your company right away. If it arrives before payment, the correct tax with the deduction will be withheld.

2. 2

   You've received it, and the slip shows 20.42%

   Settle it in the following year's tax return (a refund return). Enter your retirement income in Table 3 and the tax withheld from your slip, and the difference from the tax you owe comes back. You can file a refund return from January 1, without waiting for the usual filing period starting February 16.

3. 3

   You noticed years later

   You can file a refund return for 5 years from January 1 of the year after you left. If you've lost the slip, ask your company to reissue it. If you have questions about the resident tax deducted, contact the resident tax desk of the municipality you lived in.

Severance paid to the family of someone who has died is a different case. If the payment is finalized within 3 years of the death, it's subject to inheritance tax, not treated as retirement income. No form is needed, and no income tax or resident tax is deducted. (A tax-free allowance of 5 million yen × the number of statutory heirs applies for inheritance tax.)

FAQ

What happens if I don't submit the retirement income declaration?

The retirement income deduction isn't reflected, and 20.42% of your severance is withheld as income tax. On 20 million yen, that's 4,084,000 yen. Filing a tax return gets back the difference from the tax you owe, but until then you don't have that money.

Do I need to file a tax return after getting severance?

If you submitted the form to your company, withholding settles the tax, so you generally don't. If you didn't submit it and 20.42% was withheld, or your salary that year didn't go through year-end adjustment, filing may get you a refund.

Will I be billed resident tax on severance the next year?

No. Your company deducts and pays the resident tax on severance along with income tax when you receive it (special collection). The following year's resident tax notice covers things like your salary in the year you left.

When do I get the retirement income withholding slip?

Your company issues it within 1 month of your leaving. It's separate from your salary withholding slip and shows the severance amount, the income tax and resident tax deducted, your years of service and so on.