Nencho and Gensen Choshu
“Nencho (年調)” also called as “Nenmatsu Chosei (年末調整)” means a payback of too much taken income taxes at the end of each year (December), that Japanese employers do for their employees.
Japanese employers withhold taxes as well as social security contributions from employees’ monthly salary. They gather contributions on behalf of employees and pay them collectively to national and local governments. This system is called “Gensen Choshu (源泉徴収)”.
“Gensen Choshu-hyo (源泉徴収票)” is a certificate of yearly withheld taxes and social security contributions. Employers need to issue Gensen Choshu-hyo to all their employees at the end of each year.
Employees need to submit Gensen Choshu-hyo to:
- prove incomes and deductions from employers when submitting tax returns of each year or
- claim a tax refund to Japanese tax office.
“Kakutei Shinkoku (確定申告)” is the Japanese word to mean tax returns. Kakutei Shinkoku is submitted to Japanese tax office in the beginning of next year. If you have multiple incomes other than your salary from one employer, then you need to submit Kakutei Shinkoku and attach all your Gensen Choshu-hyo you get from employers. But if you are taken too much income tax, then you can claim a tax refund with attaching Gensen Choshu-hyo.
Example of income tax refunds employees can claim
Japanese employers, though, do Nencho (Nenmatsu Chosei) and re-calculate employees’ incomes and taxes at the end of year. After the re-calculation Japanese employers pay back too much taken income taxes to employees without submitting Kakutei Shinkoku. Each year employers pay the correct amount of employees’ income tax to governments, and kick back all the rest to them.
So a large majority of employees don’t have to submit Kakutei Shinkoku anymore and no more tax refund is left behind.
Even so, there are cases that Japanese employees can get back income taxes. To take major examples,
- if they receive a salary of over 20 million JPY / 1 year (employer does not give Nencho to high-level income employees but they need to submit a tax return by themselves),
- if they change employers in one year and take more than two Gensen Choshu-hyo, but fail to submit them to the final employer,
- if they take Gensen Choshu-hyo not as a salary but as a spot income (like a guest lecture), or
- if they end an employment before the end of year (December).
Especially the final employment year’s Gensen Choshu-hyo usually does not go through Nencho (because Nencho is done at the end of year), so it is possible that employees leave a too much taken tax.
With submitting Kakutei Shinkoku of the final employment year, you might have a chance to receive an income tax refund.
(Note) Not all the Kakutei Shinkoku in the final employment year can give you a tax refund. You need to calculate it by yourself or ask a tax accountant to calculate it.
Possible tax refunds of Japanese employees in the final employment year is from tens of thousand JPY to hundreds of thousand JPY. We’d like to advise you to keep your Gensen Choshu-hyo.
For Detailed Information..
- Withholding Tax (National Tax Agency, External Link)
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(Oda Mitsuo, YouAT LLC)