Understanding Income Tax Withholding

Global Payroll for Japan provides rules to calculate and deduct income tax from both salary and bonus payments. It also enables you to calculate income tax for employees with multiple jobs.

Income Tax on Salary

The rules for the KOU type income tax include the following:

  • Data input pages and elements to calculate the adjusted number of dependents and the dependents deduction.

  • Elements to calculate net salary pay.

  • Determination of the tax amount using the calculation formula IN FM SAL MAC KO or the monthly income tax table lookup formula IN FM SAL TBL KO, as specified for each salary payer.

The rules for the OTSU type income tax include the following:

  • Elements to calculate net salary pay.

  • Determination of tax amount using the monthly income tax table lookup formula IN FM SAL TBL OT.

Note: Applying dependent deductions to OTSU salary is highly unusual, but is supported by the application.

Income Tax on Bonus

Tax on a bonus is usually calculated based on the previous month's salary. In cases where the bonus amount is more than ten times the previous month's salary, both the previous month's salary and the bonus amount are used to calculate the tax. In cases where the payee received no salary in the previous month, the bonus amount is used to calculate the tax.

The rules for income tax on bonuses accomplish the following:

  • Determine whether to base the tax on the previous month's salary, both the previous month's salary and the bonus amount , or on the bonus amount itself.

  • Calculate the adjusted number of dependents for the KOU type.

  • Determine the tax on the bonus from the KOU or the OTSU bonus income tax rate tables.

Income Tax for Multiple Jobs

The rules for calculating income tax for employees with multiple jobs include the following:

  • The user must create income tax data for each employment record.

  • Income tax is calculated by each employment record based on the corresponding income tax data.

  • Only one employment record can have tax type KOU at a time. On the other hand, multiple employment records can use OTSU and a designated rate.

  • An employee cannot claim a deduction for the same dependent on multiple jobs at the same time.

    Each dependent can be claimed only once per employee.

Set up salary payer reference numbers, and specify the calculation method for KOU type income tax on the Tax Establishment page.