Hiring your first employee in Japan: monthly withholding tax and the year-end adjustment

November 9, 2026　日本語版

In short

When your company pays salary, it must deduct income tax from each payment (withholding) and pay it to the national government. In December, the company recalculates each employee's tax for the whole year (the year-end adjustment, nenmatsu chosei).

When you hire your first employee, start with a notice to the tax office and a form from the employee. If you plan to claim family members living outside Japan as dependents, or if an employee or director does not live in Japan, the rules are different, so check early.

1. The first things to do after hiring

Say your company hires its first employee in April and pays the first salary on April 25. These two steps come first.

• File a notice of opening a salary payment office (給与支払事務所等の開設届出書) with the tax office for your office's location, within 1 month after you start paying salary.
• Collect the employee's dependent declaration form (給与所得者の扶養控除等（異動）申告書). The employee gives it to the company by the day before the first salary payment of the year (for a new hire, the day before the first salary after joining). The company keeps it; it is normally not sent to the tax office.

For employees who have submitted this form, tax is calculated using column Kō (甲欄) of the withholding tax table. For others, column Otsu (乙欄) applies, and more tax is withheld. If an employee also works for another company and has given the form to that company, your company uses column Otsu.

Sources: National Tax Agency (NTA) Tax Answer No.2502, No.2511, No.2520; procedure A2-1 (Japanese pages)

2. Every month: withhold and pay

Each time you pay salary, find the tax in the table, deduct it, and pay it by the 10th of the following month in principle. For salary paid on April 25, the deadline is May 10.

If your company has fewer than 10 employees at all times, you can apply for the special payment schedule (源泉所得税の納期の特例の承認に関する申請書) and pay twice a year.

If the tax office does not reject the application by the end of the month after you file it, it is treated as approved, and it applies from the tax withheld in the month after you file. Filing it together with the opening notice saves monthly work.

Source: NTA Tax Answer No.2505 (Japanese page)

3. In December: settle the whole year (year-end adjustment)

Monthly withholding is a provisional calculation. With the last salary of the year, the company recalculates the correct tax using the full-year salary and deductions (dependents, insurance premiums, etc.), refunds any overpayment to the employee, and collects any shortfall. The adjustment covers employees who have submitted the dependent declaration form and whose salary for the year is ¥20 million or less. For mid-year hires, salary from the previous employer is included if you have their withholding slip (源泉徴収票).

2026 (Reiwa 8) has many changes.

• Basic deduction increased: for 2026 and 2027, ¥1.04 million for people with total income of ¥4.89 million or less (lower amounts apply above that).
• Minimum employment income deduction: raised from ¥650,000 to ¥740,000 for 2026 and 2027.
• Income limit for dependents: total income of ¥580,000 or less → ¥620,000 or less (for salary-only income, ¥1.23 million → ¥1.36 million in salary).
• Life insurance deduction for people with dependents under 23: the cap on the general life insurance deduction (new-type policies) is ¥60,000 for 2026 and 2027.

These changes take effect, in principle, on December 1, 2026, and apply to 2026 income. Monthly withholding through November does not change; the new amounts are used in the December year-end adjustment. If a family member newly qualifies as a dependent because of these changes, the employee needs to submit the dependent declaration form again.

Salary paid from January 2027 is calculated with the revised withholding tax table (which also includes the new special defense income tax, 防衛特別所得税).

Sources: NTA, "How to do the year-end adjustment for 2026 (Reiwa 8)", changes from last year (PDF, Japanese); NTA Tax Answer No.2665 (Japanese page)

4. Common pitfalls for companies run by foreign owners

Claiming family members who live outside Japan

A family member who does not live in Japan (a non-resident) can be claimed as a dependent only if they are:

• aged 16 or older and under 30,
• aged 70 or older, or
• aged 30 or older and under 70, and one of the following:
  • left Japan to study abroad,
  • has a disability, or
  • received ¥380,000 or more from the employee during the year for living or education costs.

Documents are required, at different times.

The spouse deduction and the special spouse deduction for a spouse living abroad also require documents proving the family relationship and documents proving money transfers at the year-end adjustment.

Documents proving the family relationship are one of the following (a Japanese translation is also required):

• Japanese public documents, such as a copy of the family register supplement (戸籍の附票), together with a copy of the family member's passport
• Documents issued by a foreign government or local government showing the family member's name, date of birth and address (for example, a family register, birth certificate or marriage certificate)

If one document is not enough, several documents can be combined. Except for the passport copy, originals are required.

Documents proving money transfers include the following (a Japanese translation is also required):

• Your copy of the bank's overseas remittance request (for transfers made in that year)
• Statements for a family credit card issued in the family member's name, where the employee pays the charges
• Your copy of a request to transfer electronic payment instruments (such as certain stablecoins) abroad

Common pitfalls

• Cash handed over through an acquaintance leaves no document, so the deduction cannot be claimed.
• Transfers are needed for each family member. Living costs sent in one lump sum to a spouse count for the spouse, but not for the children.
• In principle, all transfer documents for the year must be submitted. If you sent money to the same person three or more times in the year, a summary statement plus the documents for the first and last transfers of the year is enough (the employee keeps the rest).
• The ¥380,000 transfer documents must show that transfers to that person totalled ¥380,000 or more in the year. If the first and last transfers add up to less than ¥380,000, documents for the shortfall are also needed (for example, if they total ¥300,000, documents for at least another ¥80,000).
• Family credit card statements count for the year in which the card was used.

As the employer, tell employees at the start of the year which documents are needed, ask them to keep each transfer record, and collect the documents and translations for each family member before the December year-end adjustment.

Sources: NTA Tax Answer No.1180; procedure A2-1; NTA leaflet for those claiming deductions for non-resident relatives (June 2025); deductions for relatives living abroad (Japanese pages)

When an employee or director does not live in Japan

A person who has no domicile (center of life) in Japan and has not had a residence in Japan continuously for 1 year or more is a "non-resident". Salary paid to a non-resident is not included in the year-end adjustment. Tax is withheld at 20.42% in principle on the part that is taxable in Japan (the combined rate remains 20.42% from 2027). For employees, that is pay for work performed in Japan. For directors of a Japanese company, compensation is in principle taxable including work performed outside Japan.

For directors who travel between Japan and another country, whether they are a resident or a non-resident makes a big difference. A tax treaty may also change the treatment, so check country by country.

Sources: NTA Tax Answer No.2875; Income Tax Act Article 161(1)(xii)(a), 212(1), 213(1)(i) (Japanese pages)

5. Resident tax is a separate system

The company also deducts resident tax (住民税) from salary and pays it to the city where the employee lives (special collection). The deadline is the 10th of the following month in principle. In Fukuoka City, an office with fewer than 10 employees can apply to pay twice a year (June–November by December 10; December–May by June 10).

To prepare, the company files a salary payment report (給与支払報告書) with the city where each employee lived on January 1, by January 31 in principle.

Sources: Local Tax Act Articles 317-6 and 321-5; Fukuoka City website (Japanese pages)

This article is a general explanation based on materials published by the National Tax Agency and others, checked on November 8 and 9, 2026. The treatment may differ depending on individual circumstances.

If you have questions about your first payroll, the year-end adjustment, or documents for family members living abroad, please contact us.

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