Salary and Withholding
Japan boasted economic growth after the WWII and Japanese economic power was ranked number two in the world in 1968 and continued to keep the rank for 42 years until China surpassed Japan in 2009. The wages of the employee also increased accordingly. But it didn’t last forever. The nominal amount of the wage has been slightly increasing, but the real wage hasn’t changed for almost 30 years after the bubble economy finished in 1990’s.
The average annual income for the salary workers in Japan is about 4,200,000 JPY which is about 40,000 USD including bonus. But they cannot receive all the money. The company withholds a lot of amount from it as follows.
You have to pay income tax according to the amount of your income. There are two bodies to collect income tax. One is a national government. They collect the tax by the progressive taxation system. If your income is less than 1,950,000 yen, you pay 5%, and the percentage goes up 10%, 20%, 23%, 33%, 40% and the maximum is 45% if your income is over 40,000,000 yen. But even if your income is 40,000,000 yen, your tax is not 18,000,000 yen (40,000 x 0.45). The idea is that you pay 5% for the first 1,950,000 portion and so on. Actual amount for 40,000,000 income is 15,450,000 yen.
Another one is inhabitant tax. Inhabitant tax consists of prefecture tax and city tax. They differ according to the city you live in, but the total amount of the tax is roughly 10% of the income irrespective of the amount of your salary.
Of course, there are many deduction items such as life insurance, medical expense and spouse, so the actual calculation is much more complicated. If you use the website of the taxation office, it calculates the amount of the tax automatically by filling the blanks.
In Japan, everyone needs to join the health-insurance program. When you go to a doctor, dentist or hospital, you need to pay 30% of the medical fee, which means 70% is covered by the health insurance. If you are a business owner or freelancer, you join the government-provided national health insurance program. In case of the employee, the half amount of the health insurance premium is paid by the company. The premium differs according to the prefecture, but basically it is calculated about 10% of your income.
In Japan, you also need to join the pension program. If you are a business owner or freelancer, you join the national pension plan. If you are company employee, you join the employee’s pension plan which consists of national pension plan and employee’s pension insurance. The big companies have their own pension system and small companies use the public pension organization. The premium is about 18% of your income and half amount is paid by the company.
This insurance started in 2000 to deal with the super-aging society. You have to start paying premium when you become 40 years old and you have to continue the payment until you finish your life. The premium depends on your income from about 20,000 yen to 430,000 yen. The company pays half of the premium.
When you use the nursing-care service, there are 6 categories depending on your health status. And the insurance supports 10% to 30% of the nursing-care fee depending on your income.
This is the insurance that you can use when you lose your job, when you have to temporally leave your job for nursing babies and when you take a program to take a vocational education. But you don’t get the insurance if you don’t have a will to work and you need to have paid the premium at least one year. If you apply the insurance, you receive the money for 90 to 330 days depending on your age and the period you pay the premium. The payout depends on your wage and there is a limit of the amount, so the payout will be much less than your wage that you received from the company.
The premium is basically 0.3% of your income. The company adds 0.6% on it.
Total Withholding Amount
I explained above that the average annual income of Japanese salary workers is about 4,200,000 yen. In this case, the total amount of the withholding is about 20% of your income which means about 800,000 yen per year though the company pays half of the health insurance, pension and so on. So, if you are a freelance or business owner and receive the same amount of annual income, you need to pay much more money to the government.