One thing that’s always ground my gears about Japan’s tax system is the way you have to pay your residency tax, health insurance and pension based on \*last year’s\* earnings, but the income tax is paid based on the current year’s earnings. So, if you decide or are forced to change to a lower-earning job, you could be faced with crippling tax payments for the first year of your new position because you earned much more in the previous year. In the UK, you pay-as-you-earn (PAYE) every month — you start earning less (or perhaps stop working entirely), then you immediately start paying less in tax. Lose or quit your job? Then you pay nothing. Is this PAYE system also the norm for other countries??
Obviously moving upwards along a career path to higher and higher salary positions is the assumed norm, but it seems the Japanese system actively discourages (or even prevents) people from taking a step back or moving into a different career they find more fulfilling (and taking a pay cut), etc.
4 comments
Since you pay nothing in the first year, isn’t Japan’s system the same as other countries, just that the time of payment is delayed?
In Sweden, too, a lot of other payments and transfers are based on the previous years taxed income. But — and I believe this is the case in Japan as well — if your earnings suddenly drop you can apply to get those payments adjusted so you don’t get hit with bills you have no hope of paying.
1) National Pension is not based on the previous year income. It’s a fixed amount currently ¥16,590 per month.
2) Resident is not based on the previous year income. It is literally the resident tax for the previous year just billed in arrears. Likely due to the reasons I stated here: https://www.reddit.com/r/JapanFinance/comments/ve2poq/2022_residence_tax_questions_thread/ie15m8q/ so it’s money you already owe, so should be putting money a side for it/budgeting for it.
3) In the UK there is no resident tax. However, in the UK there is council tax. Which would be kinda the equivalent to resident tax.
4) You’re at least correct about National Health Insurance. That is based on the previous year taxable income.
No it’s common.
The solution is simple: start saving for the tax BEFORE it is due. Really if you spend money before the tax bill comes… you just spent money that wasn’t yours.