Today, this is essential knowledge for people working part-time or casually, as well as through crowdsourcing or service contracts, and for full-time homemakers thinking of working a little from now on.
The walls right in front of us
¥1.03 million and ¥1.3 million. If you work in an administrative department, these are figures worth keeping in mind.
They are the standards for whether one qualifies as a dependent.
There are mainly two kinds of dependency: tax dependency and social-insurance dependency.
In other words, if income exceeds each wall, you lose dependent status.
This is a fairly important financial matter.
The tax wall: ¥1.03 million
Here, let us assume that a person who had been a full-time homemaker takes a part-time job and earns money. We will consider taxes.
When you are a dependent, no income tax is imposed (because the employment-income deduction and basic deduction reduce income to zero).
Furthermore, the supporting family member (such as the husband) can deduct ¥380,000 from salary income through the spousal deduction.
So if, for example, you work and earn ¥1.03 million, the tax saving applies to a combined ¥1.41 million of income: ¥1.03 million plus ¥380,000!
Tax reduction = (¥1.03 million + ¥380,000) × each person’s income-tax rate
Even so, exceeding ¥1.03 million does not mean you suddenly lose out.
It only means that tax arises and your husband’s ¥380,000 spousal deduction is gradually reduced. It does not mean that everything you earn is taken away in tax.
Your take-home pay is only a little lower because tax arises. Until now, if you earned ¥1.03 million, you received the entire ¥1.03 million tax-free.
However, once you exceed ¥1.03 million, think of it this way: if you earn ¥100,000, ¥9,000 is taken in tax and ¥91,000 remains in your hands. It also depends on your husband’s annual income, but because the ¥380,000 special spousal deduction is gradually reduced, increasing the tax, if we assume your husband’s income-tax rate is 20% and resident-tax rate is 10%, the effective take-home amount would be about ¥61,000. ¥39,000 is significant. However, once you exceed ¥1.41 million, the effect is only the initial ¥9,000, so there is probably no need to worry so much.
Conclusion: If you are going to exceed ¥1.03 million, go well beyond it
Check whether your employer makes a year-end tax adjustment
Income tax is withheld at source, meaning an estimated amount is deducted from your salary. In other words, the amount paid to you as salary each month is after tax has been deducted.
Naturally, because it is an estimated amount, it differs from the correct amount.
That is why year-end adjustment is performed. At year-end, the tax on salary is calculated and adjusted.
There is no problem if the company has performed year-end adjustment for part-time or casual workers, but such workers may not be covered by year-end adjustment.
If year-end adjustment has not been performed, check your pay slip to see whether income tax has been withheld.
Even if your annual income is ¥1.03 million or less, income tax may have been withheld in some months.
If income tax has been withheld, file an income tax return to reclaim it.
If you go to the tax office counter, they will carefully guide you through various matters and will almost complete it for you. However, preparing a return is troublesome, so if the amount is small, giving up after considering the effort of filing an income tax return is also an option.
Truth or fiction!? Foreign nationals with large families and many dependents become an issue
Among foreign nationals working in Japan, there were people who listed enormous numbers of dependents and reduced their tax to zero.
In practice, unlike domestic dependents, tax offices could not check whether overseas dependents were really being supported, leaving them at a loss.
Therefore, for payments made on or after January 1, 2016, submitting evidence became mandatory when including overseas family members as dependents.
The evidence to submit is “documents concerning family relationships” and “documents concerning remittances.” We have also received many inquiries about this; think of something like a local resident record and its Japanese translation, together with documents proving remittances.
Perhaps some company staff have seen for themselves that this took effect and the number of dependents decreased sharply from 2016.
The social-insurance wall: ¥1.3 million
In the world of pensions, social insurance, and health insurance, if annual income is ¥1.3 million or less, you qualify as a dependent and do not bear social-insurance premiums (there are other conditions as well).
Even without that burden, you can ordinarily go to the doctor under health insurance as a “dependent family member,” and your pension coverage is properly counted as a “Category 3 insured person.”
However, if annual income exceeds ¥1.3 million, you cannot qualify as a dependent, so you need to pay for it yourself.
Whether annual income exceeds ¥1.3 million or not makes an approximate difference of ¥250,000 in social-insurance premiums. That is substantial.
Conclusion: You will have a hard time if you cross the ¥1.3 million wall casually
A small new wall added: ¥1.06 million
From October 2016, social-insurance coverage will expand to include more short-time workers, such as casual and part-time workers.
Even people whose annual income is less than ¥1.3 million may have to bear social-insurance premiums if their annual income is ¥1.06 million or more and they work at a company with 501 or more employees.
Additional social-insurance enrollment requirements from October 2016
- Work 20 hours or more per week
- Monthly wages of ¥88,000 or more (annual income of ¥1.06 million)
- Expected to be employed for one year or more
- A company with 501 or more employees
*Students are exempt
When all of requirements 1 through 4 above are met, the person becomes subject to social-insurance enrollment.
If you work part-time or casually at some large companies, premiums may arise at ¥1.06 million. Be very careful.
In conclusion, the point is that “if you will only exceed it a little, it is better not to exceed the ¥1.03 million or ¥1.3 million wall.”