The “commuting allowance” provided by companies to employees is treated differently depending on the amount granted—either taxable or non-taxable. As a form of employee benefit, commuting allowances can enhance job satisfaction, but in some cases, they may also increase income tax.
This article explains the basic rules, including the non-taxable limits of commuting allowances.
Is Commuting Allowance Taxable or Non-Taxable?
A commuting allowance is a payment provided to employees to cover the costs of commuting from their home to the office.
Commuting allowances are non-taxable up to a certain limit. If they fall within the non-taxable range, they are not considered part of taxable employment income. Below, I explain the taxation rules for commuting allowances.
Commuting Allowances Are Non-Taxable Within the Prescribed Limits
Commuting allowances provided by companies are non-taxable as long as they fall within the prescribed limits. The non-taxable limit varies depending on whether employees commute using public transportation, such as trains or buses, or by private means, such as cars or bicycles.
- For public transportation users: Up to 150,000 yen per month is non-taxable.
- For car or bicycle commuters: The non-taxable limit is determined based on commuting distance:
If both private vehicles and public transportation are used, the non-taxable limit remains 150,000 yen per month.
Amounts Exceeding the Limit Are Taxable
If the commuting allowance exceeds the specified non-taxable limit, the excess amount is subject to taxation and considered part of the employee’s taxable salary.
Difference Between Commuting Allowance and Travel Expenses
A common point of confusion is the difference between a commuting allowance and travel expenses.
- Commuting allowance: Covers the cost of daily commuting between home and office.
- Travel expenses: Cover the cost of work-related trips, such as business travel or client visits.
Travel expenses are usually reimbursed after employees temporarily cover the costs and submit an expense report.
Travel Expenses Are Fully Non-Taxable
Unlike commuting allowances, travel expenses are considered business-related expenses and are fully non-taxable. Any travel expenses included in an employee’s salary are not subject to income tax.
Rules for Non-Taxable Limits on Commuting Allowances
When Using Public Transportation
For employees commuting via public transportation, the non-taxable limit is 150,000 yen per month. The allowance must be based on the most economical and reasonable route or method.
For example, Shinkansen commuting is eligible for non-taxable status if it falls within the limit. However, Green Car (premium-class) tickets are generally not considered economical or reasonable and thus are not eligible for tax exemption.
When Using a Car or Bicycle
For employees commuting by car or bicycle, the non-taxable limit is determined by commuting distance, as detailed in the table above.
| One-way commuting distance | Non-taxable limit per month |
| 55 km or more | 31,600 yen |
| 45 km to less than 55 km | 28,000 yen |
| 35 km to less than 45 km | 24,400 yen |
| 25 km to less than 35 km | 18,700 yen |
| 15 km to less than 25 km | 12,900 yen |
| 10 km to less than 15 km | 7,100 yen |
| 2 km to less than 10 km | 4,200 yen |
comment