Retirement pay is money that is taxed very lightly. There is a large tax-free allowance called the "retirement income deduction," and because tax is charged only after halving the remainder, it is not unusual for someone with long years of service to owe zero tax even on ¥10 million of retirement pay. In this article, you can check the tax and take-home amounts by retirement pay amount and by years of service in a quick-reference table. For the mechanism of the deduction itself, see also Taxes on retirement pay.
How it is calculated (a recap)
Retirement income deduction: for 20 years of service or less = ¥400,000 × years of service; for more than 20 years = ¥8 million + ¥700,000 × (years of service − 20)[National Tax Agency No.1420 (in Japanese)]. Income tax (progressive) and residence tax of 10% are charged on this retirement income.
If the retirement pay is less than the deduction, the tax is ¥0. Only the amount exceeding the deduction is taxed, and only on half of it.
Quick reference: tax and take-home by retirement pay amount (example: 30 years of service)
These are the guide figures for tax and take-home by retirement pay amount for 30 years of service (retirement income deduction ¥15 million).
| Retirement pay | Retirement income | Tax (income tax + residence tax) | Take-home |
|---|---|---|---|
| ¥10 million | ¥0 | ¥0 | ¥10 million |
| ¥15 million | ¥0 | ¥0 | ¥15 million |
| ¥20 million | ¥2.5 million | approx. ¥410,000 | approx. ¥19.59 million |
| ¥25 million | ¥5 million | approx. ¥1.09 million | approx. ¥23.91 million |
| ¥30 million | ¥7.5 million | approx. ¥1.86 million | approx. ¥28.14 million |
With 30 years of service, tax is ¥0 up to ¥15 million. Because only "half" of the excess is taxed, the tax burden is light relative to the face amount.
It changes greatly with years of service (example: ¥20 million retirement pay)
Even for the same retirement pay, the longer your years of service, the larger the deduction and the lower the tax. We compare using a case of ¥20 million retirement pay.
| Years of service | Retirement income deduction | Tax | Take-home |
|---|---|---|---|
| 20 years | ¥8 million | approx. ¥1.39 million | approx. ¥18.61 million |
| 30 years | ¥15 million | approx. ¥410,000 | approx. ¥19.59 million |
| 38 years | ¥20.6 million | ¥0 | ¥20 million |
With 38 years of service, the deduction becomes ¥20.6 million, so ¥20 million of retirement pay is entirely tax-free.
Points worth knowing
- If you submit the "Report Concerning Receipt of Retirement Income" to your employer, taxation is completed by withholding alone, and in principle no tax return is needed. If you do not submit it, a flat 20.42% is withheld (which can be reconciled by filing a return).
- Residence tax is also 10% under separate taxation. It is deducted on the spot from the retirement pay, and it does not increase your residence tax the following year.
- If you receive it close in time to an iDeCo lump sum, the retirement income deduction may be adjusted to remove overlap, increasing the tax. The order and timing of receipt are explained in The order of receiving iDeCo and retirement pay.
- For a "short-term retirement allowance" with 5 years of service or less, the 1/2 taxation cannot be used on the portion over ¥3 million after the deduction (for officers and the like, the 1/2 rule cannot be used at all for 5 years or less).
FAQ
How much tax is there on ¥10 million of retirement pay?
It depends on your years of service. With 25 or more years of service, the retirement income deduction is ¥11.5 million or more, so ¥10 million of retirement pay is taxed at ¥0. If the retirement pay is less than the deduction, no tax is charged. With short service, tax may apply.
Does receiving retirement pay raise my residence tax the following year?
No. Residence tax on retirement pay is under separate taxation and is calculated and deducted on the spot when you receive the retirement pay. It is not added on top of the residence tax on your salary or pension the following year.
Do I need to file a tax return for retirement pay?
If you have submitted the "Report Concerning Receipt of Retirement Income" to your employer, it is completed by withholding and in principle no return is needed. If 20.42% was withheld because you did not submit it, or if you want a refund through the medical expense deduction or the like, you file a return.
If I receive both an iDeCo lump sum and retirement pay, does the tax increase?
If you receive both close in time, the retirement income deduction is adjusted to remove overlap and the tax may increase. From 2026, the rule for the case where you receive iDeCo first was extended to 10 years. Please see the article on the order of receipt.
Summary
Reference links (sources)
This article is based on the following materials published by the National Tax Agency (neutral, primary sources). Because tax amounts are estimates, please confirm exact figures with your employer, a tax office, or a tax accountant.
- National Tax Agency No.1420 When you receive retirement pay (retirement income) (in Japanese)
- National Tax Agency No.2732 Withholding on retirement allowances and the like (in Japanese)
- National Tax Agency No.2260 Income tax rates (in Japanese)
* This article is general information, not tax advice. For individual decisions, please confirm with a tax office or a tax accountant.