Retirement Allowance Take-Home Pay in Japan: Tax on 10, 20 and 30 Million Yen

Three steps to calculate the tax

1. 1

   Subtract the retirement income deduction

   For 20 years of service or less, it's 400,000 yen × years of service. Beyond 20 years, it's 8,000,000 yen + 700,000 yen × (years of service − 20). If the allowance is at or below this amount, the tax is 0 yen and you're done.

2. 2

   Halve the remainder

   Half of the amount after the deduction is your taxable retirement income (dropping amounts under 1,000 yen). There are exceptions for 5 years of service or less and for executives.

3. 3

   Apply income tax and resident tax

   Income tax uses the same 5–45% quick table as salaries, multiplied by 102.1% to include the special reconstruction income tax. Resident tax is a flat 10%.

For example, with a 10 million yen allowance and 20 years of service, subtracting the 8 million yen deduction leaves 2 million yen, half of which gives taxable retirement income of 1 million yen. Income tax is 1,000,000 yen × 5% × 102.1% = 51,050 yen, resident tax is 100,000 yen, for a total of 151,050 yen, and take-home pay is 9,848,950 yen.

A deduction chart and how much is tax-free are explained in detail in what the retirement income deduction is.

Tax chart by allowance and years of service

These are combined income and resident tax amounts for ordinary employees (6 or more years of service, not retiring due to disability).

For the same allowance, a 5-year difference in service changes the tax by hundreds of thousands of yen. One year matters especially for people near the edge of the tax-free amount.

Take-home pay on 10, 20 and 30 million yen

Resident tax often exceeds income tax because while taxable retirement income is small, the income tax rate stays at 5% or 10%, whereas resident tax is a flat 10%.

Why the tax rate looks low

Tax on a 30 million yen allowance after 38 years of service is 993,262 yen, an effective rate of about 3.3% of the allowance. Even 20 million yen after 30 years comes to only about 2.0%. That's a far lower burden than receiving the same amount as salary.

• There's a large deduction based on years of service (20.6 million yen at 38 years)
• The rate applies only after the remainder is further halved
• It's taxed separately from salary, so it doesn't raise the tax rate on your salary in the year you retire
• Social insurance premiums (health insurance, employee pension, employment insurance) don't apply to retirement allowances

How much tax one more year of service saves

Fractions of a year of service are rounded up, so moving your retirement date by just one day can add a full year. For choosing a retirement date, see how to count years of service for a retirement allowance. How to use your money after retirement is covered in how to draw down retirement savings.

Receiving an enhanced allowance through early or voluntary retirement

With early or voluntary retirement, an extra amount makes the allowance larger, but your years of service are shorter than if you had stayed until mandatory retirement. The deduction is smaller and more is taxed, so the tax share tends to be higher than at mandatory retirement. The extra amount is treated as retirement income and calculated the same way as the rest.

Even so, the tax share is nearly always under 10%. If you know the amount offered and your years of service, the Retirement Allowance Tax & Take-Home Calculator can quickly show your take-home pay. For unemployment benefits after retiring, see also how many days of unemployment benefit you can get.

FAQ

What's the take-home pay on a 20 million yen retirement allowance?

With 38 or more years of service, the tax is 0 yen and you keep 20 million yen. With 35 years, the tax is 113,287 yen and take-home pay is 19,886,713 yen. With 30 years, it's 405,702 yen and 19,594,298 yen. With 20 years, it's 1,388,722 yen and 18,611,278 yen.

What's the tax on a 10 million yen retirement allowance?

0 yen with 23 or more years of service. With 20 years, it's 151,050 yen (income tax 51,050 yen, resident tax 100,000 yen). With 10 years, it's 506,752 yen (income tax 206,752 yen, resident tax 300,000 yen).

What percentage is the tax on a retirement allowance?

There's no flat rate. Half of the amount after the deduction is subject to income tax at 5–45% (102.1% of that including the special reconstruction income tax) and resident tax at 10%. The actual burden on the allowance is about 2.0% for 20 million yen after 30 years of service and about 3.3% for 30 million yen after 38 years.

Are social insurance premiums deducted from a retirement allowance?

No. Only income tax (including the special reconstruction income tax) and resident tax are deducted from a retirement allowance.