Counting Years of Service for a Retirement Allowance in Japan: A One-Day Difference Can Change the Tax

Years of service round up any fraction

The years of service used for the retirement income deduction are the period from the day you joined the company to the day you retired. Any fraction of a year rounds up to 1 year (Article 69, Paragraph 2 of the Order for Enforcement of the Income Tax Act). Whether it's 25 years 1 month or 25 years 11 months, it's 26 years for tax purposes.

In other words, retiring even one day past a full year gives you one more year of service than retiring exactly on the full year. If you have over 20 years of service, one more year raises the retirement income deduction by 700,000 yen.

Examples of years of service by date

For someone who joined on April 1, retiring on March 31 gives an exact number of years, and retiring on April 1 or later adds a year. An easy way to remember it: retire on or after the anniversary of your hire date (the same month and day), and you gain a year.

How much the tax changes with one more year

For someone who joined on April 1, 1988 with a 30-million-yen allowance, retiring on March 31, 2026 (38 years) means 993,262 yen in tax. Retiring on April 1 or later makes it 39 years and 886,792 yen, which is 106,470 yen less. If your allowance already fits within the tax-free amount, more years of service don't change the tax.

Tax and take-home by amount are in tax and take-home on 10, 20 and 30 million yen, and the deduction list is in the retirement income deduction table.

Periods included in years of service and periods that aren't

• Leave of absence, childcare leave and family care leave: included if you were still employed by the company
• Probation and time as a part-timer: included if you stayed on continuously at the same company
• Secondment to a group company: included if your home company pays an allowance that includes the secondment period
• Time at a previous company: included if you received no allowance from the previous company and your current company calculates and pays one that includes that period
• Rehire after mandatory retirement: if you received an allowance at mandatory retirement, the period before it is separate, and an allowance after rehire counts only the period after rehire

Whether a period can be included depends on how the company treats it when calculating the allowance. If in doubt, check the years of service field on the Withholding Slip for Retirement Income you receive from your company.

What to watch for when setting your retirement date

• Moving your retirement date later may raise not only the tax benefit but the allowance itself under your company's rules
• If using up paid leave separates your last working day from your retirement date, years of service count to the retirement date (your last day of employment)
• It also affects unemployment benefit days and the difference in benefits when retiring around age 65
• If your allowance already fits within the tax-free amount, there's no tax reason to move your retirement date

For how to schedule retirement after using up your paid leave, see using paid leave before leaving. For the difference in unemployment benefit around 60 and 65, see unemployment benefit at 60 and 65.

A year counts for more after 20 years

One more year of service raises the retirement income deduction by 400,000 yen up to 20 years and by 700,000 yen after that. The amount after the deduction is halved before tax, so taxable retirement income falls by 200,000 yen and 350,000 yen respectively. Multiplying by your income tax rate and the 10% resident tax gives a rough idea of how much less tax you pay with one more year.

For example, someone with 21 or more years of service and taxable retirement income in the 1.95 to 3.3 million yen range (10% income tax rate) pays about 70,000 yen less: 350,000 yen × (10% × 102.1% + 10%). The 70,735 yen for 20 million yen and 30 → 31 years in the table above is this example.

How to check your years of service and the boundary date

1. 1

   Confirm your hire date and planned retirement date

   You can confirm your hire date from your employment contract, employee ID or pension records. Also check whether probation or part-time periods are added in.

2. 2

   Enter the dates in the calculator

   In the Retirement Allowance Tax & Take-Home Calculator, choose From hire and retirement dates to see your length of service and your years of service after rounding up.

3. 3

   See the boundary date and the tax difference

   It also shows the date from which retiring adds a year of service, and how much less tax you'd pay. If the gap is large, it's something to discuss with your company when setting the date.

FAQ

How are fractions of a year of service handled?

Any fraction of a year rounds up to 1 year. Even 25 years and 1 day counts as 26 years for the retirement income deduction. With over 20 years of service, each additional year raises the deduction by 700,000 yen.

Does the tax differ between retiring on March 31 and April 1?

It can if you joined on April 1. If you joined on April 1, 2000, retiring on March 31, 2026 means 26 years of service, while retiring on April 1 is 26 years and 1 day, or 27 years, and the deduction rises by 700,000 yen. If your allowance exceeds the tax-free amount, your tax goes down.

Do childcare leave and leave of absence count toward years of service?

If you were employed by the company during that time, they count toward years of service for tax. Even if your company's rules exclude leave when calculating the allowance amount, years of service for tax are considered separately.

What about years of service if I'm rehired after mandatory retirement?

If you received an allowance at mandatory retirement, an allowance after rehire counts only the period after rehire. If you didn't receive one at mandatory retirement and receive it all at your final retirement, years count continuously from when you joined.