Retirement Allowance Tax in Japan (Taishokukin)

Last updated: 6 October 2026 · figures for the 2026 tax year (令和8年分)

A retirement allowance (退職金, taishokukin) is taxed on its own, apart from your salary, and gently. A deduction that grows with your years of service comes off first, then only half of what is left is taxed. On ¥20,000,000 after twenty-five years, ¥19,143,628 reaches you. The catch is paperwork: without one form handed to the payer, 20.42% is withheld and you have to file a return to get the difference back.

The deduction for years of service

The National Tax Agency sets out the deduction (退職所得控除額) in two steps:

• Up to twenty years: ¥400,000 for each year, and never less than ¥800,000.
• Over twenty years: ¥8,000,000 plus ¥700,000 for each year beyond twenty.

A part year counts as a whole one: the agency’s own example is ten years and two months, which is eleven years and a deduction of ¥4,400,000. Thirty years gives ¥15,000,000. If the retirement is caused by becoming disabled, ¥1,000,000 is added.

Then only half is taxed

What is left after the deduction is halved, and the half is the retirement income (退職所得) that tax is charged on — in its own calculation, not added to your salary. Two exceptions stop the halving:

• Directors and officials with five years or less in that role (特定役員退職手当等): nothing is halved.
• Anybody else with five years or less (短期退職手当等): the first ¥3,000,000 after the deduction is halved, and anything above it is not.

The second one catches people who come to Japan for a few years. On a short contract, a large allowance is taxed more heavily than the same sum after a long career, and the table below shows by how much.

What it comes to

The income tax is charged on the retirement income in the same bands as any other income, 5% to 45%, with the 2.1% reconstruction surcharge on top. Resident tax is 10% of it — 6% to the municipality and 4% to the prefecture — and is also taken at payment. Worked through for an ordinary employee, not a director:

The two five-year rows are the short-service rule at work. On ¥3,000,000 the ¥1,000,000 left after the deduction is under ¥3,000,000, so all of it is halved. On ¥6,000,000, ¥4,000,000 is left: ¥3,000,000 of it is halved and ¥1,000,000 is not, so ¥2,500,000 is taxed rather than ¥2,000,000. After twenty-five years, ¥20,000,000 is taxed on just over a fifth of itself.

The twenty-five-year row, step by step

1. Deduction: ¥8,000,000 for the first twenty years plus ¥700,000 for each of the five after them, ¥11,500,000.
2. Left after it: ¥20,000,000 less ¥11,500,000, ¥8,500,000.
3. Half of that is the retirement income: ¥4,250,000.
4. Income tax: ¥4,250,000 sits in the 20% band, where the National Tax Agency’s quick table takes 20% and subtracts ¥427,500 — ¥422,500. The 2.1% surcharge makes it ¥431,372, with fractions of a yen dropped.
5. Resident tax: 6% and 4% of ¥4,250,000, ¥425,000.

Your salary does not change any of this. The allowance can change the tax on your salary, though. Retirement income counts in your total income for the year (合計所得金額) — the National Tax Agency says it is added even when no return is needed — and total income decides the basic exemption and the exemption for spouse. Receive this ¥20,000,000 in a year with ¥6,000,000 of salary and the total comes to ¥8,610,000: the basic exemption on the salary falls from ¥1,040,000 to ¥620,000, and the salary’s income tax rises by ¥42,900. In the other direction, deductions your other income is too small to use can come off the retirement income (所得税法 第87条), which takes a final tax return (確定申告) and matters mostly in a year with little salary.

The form that decides the withholding

Before you are paid, give the payer the declaration for receiving retirement income (退職所得の受給に関する申告書). With it, the payer works out and withholds the right amount and, as a rule, no return is needed. Without it, the National Tax Agency says 20.42% of the whole payment is withheld — ¥4,084,000 on ¥20,000,000, against ¥431,372 with the form — and you settle the difference with a final tax return the following spring. The money comes back, months later. If you file a return anyway, for a medical-expense claim for example, the retirement income has to go on it.

If you have taken a lump sum before

Two allowances close together do not each get a full deduction: years that overlap are taken out, and the agency notes that the calculation differs if you received one in an earlier year or two in the same year. The 2026 amendment lengthened one of these look-backs. Where a lump sum from a defined-contribution pension — iDeCo or a company DC plan — was paid on or after 1 January 2026, an ordinary retirement allowance received later is checked against allowances from the nine years before the year it is paid, not four as before (for allowances paid before 2026 the four years still apply). If you are planning the order in which to take an iDeCo lump sum and a company allowance, that is a question for your tax office or a 税理士 before you choose.

Questions people ask

Do I have to file a tax return for my retirement allowance?

Not if you handed in the declaration (退職所得の受給に関する申告書): the payer withholds the right tax and that settles it. Without the declaration 20.42% is withheld, and a return is how you get the difference back.

Is a retirement allowance added to my salary for tax?

No. It is taxed separately, on its own bands, after its own deduction, and the allowance itself is never added to your salary. But it counts in your total income for the year, which can shrink the basic exemption and the exemption for spouse on your salary, raising the tax on it and, near the edge of a band, the rate at which its top slice is taxed.

How are part years of service counted?

Rounded up to a whole year. Ten years and two months counts as eleven, which the National Tax Agency uses as its own example.

This is a general explanation, not tax advice. The table assumes one allowance, an ordinary employee, no earlier lump sums and the declaration handed in. From 2027 the 2.1% surcharge is split into a reconstruction part and a new defence part; the National Tax Agency states that the combined rate, and so the withholding, does not change. A lump sum paid while you are not resident in Japan is taxed differently and is outside this page.

Sources

• National Tax Agency — No.1420 退職金を受け取ったとき（退職所得） [令和8年4月1日現在法令等] (the deduction, the halving and its two exceptions, the declaration, 20.42% without it, and the 2027 split of the surcharge). Japanese.
• National Tax Agency — 令和8年4月 源泉所得税の改正のあらまし (page 7: the nine-year look-back after a defined-contribution lump sum paid from 1 January 2026). Japanese.
• National Tax Agency — 税務用語 合計所得金額 (retirement income is included in total income, even when no return is needed). Japanese.
• Income Tax Act (所得税法) 第87条 — the order in which deductions come off: other income first, retirement income after it.
• Local Tax Act (地方税法) 第50条の4 and 第328条の3 — resident tax on retirement income, 4% to the prefecture and 6% to the municipality — and 第328条の5, under which the payer takes it when the allowance is paid.

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