The year-end tax adjustment is a procedure to correct any excess or deficit in income tax withholding from your salary or bonuses. This process is conducted annually. If you’ve overpaid your income tax, you’ll receive a refund, while underpaid taxes will require additional payment.
The reason for the year-end tax adjustment is that the income tax deducted through withholding is an estimate. Employers calculate income tax based on the salary paid to employees and withhold it monthly. However, at the time of withholding, neither the total annual income nor the deductible amounts are finalized.
Thus, the year-end tax adjustment ensures the correct income tax is calculated and paid based on the finalized annual income after deducting applicable expenses.
Difference Between Year-End Tax Adjustment and Final Tax Return
If you work for a company, your income tax is generally adjusted through the year-end tax adjustment. However, if you don’t work for a company and instead earn income through self-employment or freelancing, you must file a final tax return to calculate your annual income tax.
Final tax returns are filed between February 16 and March 15 each year, during which taxpayers report their income and any expenses incurred in conducting business.
Who is Eligible for the Year-End Tax Adjustment?
The year-end tax adjustment applies to employees whose income is subject to withholding and who have submitted a Declaration of Dependents (and Changes) form to their employer.
Eligible individuals typically include those employed throughout the year or those who joined mid-year and are still employed at year-end. This includes not only full-time and contract employees but also part-time workers and students with part-time jobs.
If you change jobs during the year, the year-end tax adjustment will be conducted by your new employer. In this case, you’ll need to submit the income tax withholding slip (源泉徴収票) from your previous employer to your new company.
Who is Not Eligible for the Year-End Tax Adjustment?
Certain individuals are excluded from the year-end tax adjustment process. These people must file a final tax return instead. Examples include:
- Self-employed individuals or freelancers.
- Employees earning more than ¥20 million annually.
- Those receiving salaries from two or more employers.
What Happens During the Year-End Tax Adjustment?
The employer collects tax-related declaration forms from employees, recalculates their taxes, and submits the finalized report to the tax office. Employees are responsible for submitting their forms and supporting documents to the company by the deadline.
Most companies distribute these forms between November and early December. Employees must fill out the required information, attach supporting documents such as insurance deduction certificates, and return them to their employer.
Based on the submitted forms, the company recalculates the correct amount of income tax. Refunds or additional payments are then adjusted through the employee’s salary.
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