🔰 Ask a Tax Accountant: Who Among Salary Earners Needs to File a Tax Return
The moment you think, "I'm a company employee, so it doesn't apply to me," taxes will tap you on the shoulder from behind.
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Mika: Someone who thought everything was settled with the year-end adjustment as a company employee. Her eyes dart around a bit when she hears words like side jobs, investments, or extra income. Professor: A tax accountant. Someone whose job is to translate complex tax matters back into human language as much as possible.
[In principle, company employees are done with the year-end adjustment. But there are exceptions.]
Mika: Professor, company employees basically don't need to file a tax return, right? Since the company handles the year-end adjustment, I thought it was a very grateful system where you can just leave tax matters to the company's accounting department.
Professor: Basically, that understanding is correct. For most salary earners, income tax is withheld from their monthly salary, and the income tax for that year is settled through the year-end adjustment. In other words, the company is taking on the rather troublesome calculations for you.
Mika: That's very grateful. The year-end adjustment is like a housekeeper in the tax world for company employees.
Professor: However, even housekeepers have a scope of work. Even if they tidy up the house, if there is a mysterious shed in the back of the garden, they cannot take care of that. Even for salary earners, if they meet certain conditions, there are cases where they must file a tax return themselves.
Mika: There it is. "Certain conditions." When this phrase appears in tax documents, the fog suddenly gets thicker.
Professor: Let's dehumidify that fog little by little today. The important thing is not to assume that "because I'm a company employee, I don't need to file." Even as a company employee, those with high salaries, those with side jobs or other income, those receiving salaries from multiple employers, or those with special income as an officer of a family-owned company may need to file a tax return. Even for salary earners, those with salary income exceeding 20 million yen or those with income other than salary exceeding 200,000 yen are required to file a tax return.(National Tax Agency)
[What you should first grasp is that "required filings" and "filings you should do" are different]
Mika: Professor, this is sudden, but I'm getting mixed up between "people who need to file a tax return" and "people who benefit from filing a tax return."
Professor: That is very important. Broadly speaking, tax returns are divided into "filings you must do" and "filings you should do". The former is an obligation. The latter is for cases where you might get a tax refund, such as medical expense deductions, the first year of a housing loan deduction, or donation deductions.
Mika: In other words, there are filings where you are told "you must file" and filings where you are told "you might get a tax refund if you file."
Professor: That's right. The theme this time is mainly "people who need to file a tax return even if they are salary earners." It's a slightly different story from people who file on their own to receive a refund.
Mika: I see. To use an analogy, it's the difference between "people who must go to the hospital" and "people who can feel at ease if they get a health checkup."
Professor: That's quite close. In the case of taxes, if you leave them alone, you may receive an inquiry later. The tax office is the type of person who remembers forgotten promises.
Mika: They have a better memory than my old classmates.
[People with salary income exceeding 20 million yen]
Mika: First of all, people with salary income exceeding 20 million yen need to file a tax return, right?
Professor: Yes. This is a relatively straightforward condition. People with an annual salary income exceeding 20 million yen are required to file a tax return, even if they are salary earners. One of the cases where a salary earner needs to file a tax return is when their annual salary income exceeds 20 million yen. (National Tax Agency)
Mika: A company employee making over 20 million yen. It feels like they are a different species from the company employees I know.
Professor: Well, once you exceed 20 million yen in annual income, even as a company employee, you are a very high-income earner. There are various cases, such as executives, professionals, executives at foreign-affiliated companies, and sales staff with large commissions.
Mika: But if it's being withheld from my salary, I feel like the company would handle everything.
Professor: That is where it is easy to be misunderstood. Having taxes withheld from your salary and having them finalized through the year-end adjustment are not the same thing. Withholding is a system where taxes are tentatively deducted from your monthly salary. The year-end adjustment is a system where the company settles the tax amount for that year. In the case of high salary income, it cannot be completed by the year-end adjustment alone, and you must file a tax return yourself.
Mika: So, withholding is 'paying a little bit at a time along the way,' and filing a tax return is 'settling the final balance.'
Professor: That is a good way to understand it. Even if you order a course meal at a restaurant and pay for drinks a few times during the meal, there is sometimes a final bill at the end.
Mika: The tax restaurant—the final bill is scary.
【People with side income exceeding 200,000 yen】
Mika: Next is the famous '200,000 yen side job issue.' I hear this often. Some people say, 'If your side job is 200,000 yen or less, you don't need to file.'
Professor: That way of putting it is quite dangerous. First of all, the 200,000 yen mentioned here is, in principle, a situation where you should think in terms of 'income' rather than 'revenue.' For example, if a person who receives a salary from one source and that salary is subject to withholding tax earns income other than salary income and retirement income, they are required to file a tax return if the total amount exceeds 200,000 yen. If you receive a salary from one source, all of which is subject to withholding tax, and the total amount of various income excluding salary income and retirement income exceeds 200,000 yen, you must file a tax return. (National Tax Agency)
Mika: This is important. It's not '200,000 yen in sales,' but '200,000 yen in income.'
Professor: That's right. For example, even if you have 300,000 yen in sales from a side job, if your necessary expenses are 150,000 yen, your income is 150,000 yen. In this case, you cannot simply say, 'My sales exceeded 200,000 yen, so I must file a tax return immediately.' Conversely, if you have 250,000 yen in sales and almost no expenses, your income could exceed 200,000 yen.
Mika: In other words, in the world of taxes, you look not only at 'how much came in' but also at 'how much is left.'
Professor: Exactly. Just like the discussion about income tax last time, if you confuse revenue and income, you will get lost here too.
Mika: The difference between revenue and income is like the 'left and right' of the tax world. If you get this wrong, you won't reach your destination.
Professor: That is exactly right. A common question in side job consultations is, 'I earned 250,000 yen from a side job. Do I need to file?' When that happens, the first thing I check is, 'Is that revenue or income?'
Mika: There it is again. Revenue and income. The famous duo of the tax world—or rather, the troublesome duo.
Professor: If you distinguish them correctly, they are a reliable duo. If you mix them up, they become a monster.
【It doesn't necessarily mean you don't have to do anything if it's 200,000 yen or less】
Mika: So, if my side income is 200,000 yen or less, does that mean I don't have to do anything at all?
Professor: You need to be careful here, too. Even if you don't need to file an income tax return, you may still need to file a resident tax return. Local government guidelines often state that even if an income tax return is not required when income other than salary or public pensions is 200,000 yen or less, a city or prefectural tax return is still required. (Osaka City Official Website)
Mika: What? Even if an income tax return isn't required, is resident tax a separate matter?
Professor: In the world of taxes, there are surprisingly many 'separate matters.' Income tax and resident tax are different tax items. If you file an income tax return, that information is usually passed on to the resident tax authorities, so you often don't need to file a separate resident tax return. However, if you do not file an income tax return, you may need to file one for resident tax purposes.
Mika: So it's dangerous to think, 'It's under 200,000 yen, so I'm completely off the hook.'
Professor: Exactly. The idea that 'an income tax return is not required' is not the same as saying 'a resident tax return is not required.' Anyone who has started a side job should be aware of this difference.
Mika: In the world of taxes, the word 'not required' also has its own jurisdiction, doesn't it?
Professor: That is a very good way to put it. If you misunderstand the scope of what is not required, the requirement will come looking for you later.
[People receiving salary from two or more sources]
Mika: Next is people who receive salary from two or more sources. Does this mean people who have part-time jobs on the side or work for a different company in addition to their main job?
Professor: That's right. People who receive salary from two or more sources also need to be careful. Even if all of your salary is subject to withholding tax, if the total of your salary income that was not subject to year-end adjustment and your income other than salary and retirement income exceeds 200,000 yen, you must file a tax return. People who receive salary from two or more sources and whose total income, excluding salary income not subject to year-end adjustment and retirement income, exceeds 200,000 yen must file a tax return. (National Tax Agency)
Mika: I'm curious about something here. If the side job is 'outsourcing,' we look at the income. But if the side job is 'part-time salary,' do we look at the salary amount that wasn't subject to year-end adjustment?
Professor: Sharp observation. That is the point of confusion. If you receive a salary from your main company and also receive a part-time salary from another company, that other salary is treated as 'salary income.' On the other hand, if you receive compensation through outsourcing, you look at the income after deducting necessary expenses from the revenue, such as miscellaneous income or business income.
Mika: In other words, even if we say '200,000 yen from a side job,' what we look at depends on the form of the side job.
Professor: That is correct. Whether you are working part-time at a convenience store, receiving writing fees, doing video editing as an outsourced job, or selling items online—the tax treatment changes depending on the form.
Mika: The word 'side job' is one bag in everyday conversation, but in taxes, they take everything out of the bag, don't they?
Professor: Taxes look at the contents rather than the label on the bag.
Mika: It's like an assortment of snacks. You open the side job bag, and out come salary, miscellaneous income, business income, and dividend income.
Professor: And instead of an expiration date, there is a filing deadline.
[Cases where filing is exceptionally not required even with salary from two sources]
Mika: I understand that if I receive salary from two places and the salary that wasn't year-end adjusted exceeds 200,000 yen, I need to file a tax return. But there are exceptions, right?
Professor: Yes, there are. Even if you receive salary from two or more places, if the amount remaining after subtracting certain income deductions from the total salary income is 1.5 million yen or less, and the total amount of income other than salary and retirement income is 200,000 yen or less, filing may not be required. According to the materials, people whose total salary income minus certain income deductions is 1.5 million yen or less, and whose income other than salary and retirement income is 200,000 yen or less, are not required to file. (National Tax Agency)
Mika: This part is a bit detailed. The fog has returned to the reader's brain.
Professor: Honestly, this exception is a bit difficult for the general public to judge at a glance. Therefore, in practice, if you receive salary from two or more places and there is salary that has not been year-end adjusted at one of them, it is safer to check early.
Mika: Instead of deciding for myself that 'it's probably fine,' it's better to line up my withholding tax slips and check.
Professor: Yes. Withholding tax slips are the medical certificates of the tax world. If you have two or more, you need to look at them a bit more carefully.
Mika: Just having two withholding tax slips suddenly makes it feel like a suspense story.
Professor: However, it doesn't always turn into a scary story. Sometimes you get a refund. The important thing is not to leave it unattended.
【Officers of Family-Owned Companies Should Be Careful About Other Income from the Company】
Mika: The next topic is officers of family-owned companies. Are you talking about company presidents and their family members who are officers?
Professor: That's right. It's easy to understand if you imagine cases like owner-presidents of small and medium-sized enterprises or their relatives who are officers. If an officer of a family-owned company receives interest on loans or rent for assets from that family-owned company in addition to their officer compensation, they may need to file a tax return. Officers of family-owned companies who receive interest on loans or rent for assets from that family-owned company are also listed as people who need to file a tax return. (National Tax Agency)
Mika: For example, is it when a president lends money to their own company and receives interest from the company?
Professor: That's right. Or, it could be when a president personally owns a building and rents it to the company, receiving rent from the company.
Mika: If you are only receiving officer compensation from the company, it is salary, but if you receive interest or rent, other income arises.
Professor: Exactly. When a company and an individual have a close relationship, the flow of money can look like 'exchanges within a family.' However, in the world of taxes, a company is a company, and an individual is an individual.
Mika: Since it's their own company, some people might feel like their wallets are one and the same.
Professor: That is dangerous. If you mix the company's bankbook and your personal wallet, it becomes difficult to see clearly both in terms of taxes and management. In the case of officers of family-owned companies, you must check whether you are receiving anything other than salary from the company.
Mika: You need to look at the deposits from the company and categorize them as 'this is officer compensation, this is rent, this is loan interest.'
Professor: Yes. When money moves from the company's account to an individual, it should always be labeled. An unlabeled deposit will become a ghost story later.
Mika: That's the one where you get asked during a tax audit, 'What is this deposit for?'
Professor: That's right. Money without a name speaks the loudest later on.
[People receiving deferrals or other relief on income tax withholding due to disasters]
Mika: Next, there is the topic of disaster-related matters.
Professor: Yes. If you have received deferrals or refunds regarding income tax withholding due to a disaster, you may need to file a tax return. This is slightly different in nature from the typical salary earner's situation, but if you have received special tax treatment during a disaster, you may need to settle the accounts afterward.
Mika: So, tax treatment can change during a disaster to protect our livelihoods. But it doesn't just end there; there are cases where filing a return becomes relevant later.
Professor: Exactly. Special tax measures are a lifeboat, but you need to check where you're headed after you get on.
Mika: Once you get on the lifeboat, there might be a settlement waiting at the port.
Professor: A very tax-like port, indeed.
[People receiving salary from someone who is not obligated to withhold tax]
Mika: So, "people receiving salary payments from someone who is not obligated to withhold tax" also need to file a tax return. This is a bit confusing.
Professor: Normally, when a company pays a salary, it withholds income tax. However, when you receive a salary from someone who is not obligated to withhold tax, you must settle the taxes yourself. According to the documentation, people receiving salary payments from someone not obligated to withhold tax are listed as those who need to file a tax return. (National Tax Agency)
Mika: In other words, if income tax is not being deducted from your monthly salary, you need to be careful.
Professor: That is an easy way to think about it in practical terms. For a regular company employee, income tax appears on the pay stub. However, in the case of special workplaces or payers, withholding might not be performed. In that case, there is no guarantee that someone will neatly settle it for you at the end of the year.
Mika: It's like a self-checkout counter in the tax world.
Professor: Exactly. But even though it's a self-checkout, you shouldn't leave with the goods without paying.
Mika: If income tax isn't deducted from your salary, your take-home pay feels higher and you might be happy, but there's a possibility you'll have to pay it yourself later.
Professor: That is the point. A salary from which tax is not withheld looks like you have more take-home pay at that moment. However, the tax hasn't disappeared; it has just been pushed to the back.
Mika: Taxes don't disappear. They get pushed to the back. That's a scary thought.
Professor: Taxes are like shadows. When the direction of the light changes, they reappear in a different place.
[Cases where filing a return is necessary even for retirement income]
Mika: I have the impression that the company usually handles the procedures for retirement money.
Professor: In many cases, as long as you have submitted the 'Application for Receipt of Retirement Income' for retirement income, appropriate withholding tax is performed at the time of payment, and that is often the end of it. However, if the tax amount calculated using the standard method for retirement income is higher than the amount withheld, you may need to file a tax return. People whose tax amount calculated by the standard method for retirement income exceeds the withheld amount are also listed as those who need to file a tax return. (National Tax Agency)
Mika: So, it's not necessarily the case that retirement money is always settled just because it's been withheld.
Professor: That's right. Retirement income is calculated differently from regular salary because it involves factors like years of service and the retirement income deduction. Basically, it is often treated favorably, but if the procedures or calculations are not appropriate, a tax return may be required.
Mika: Retirement money is money for a major milestone in life, so we have to look at the taxes carefully, don't we?
Professor: Exactly. Retirement money is the fruit of many years of work. If you get the tax treatment wrong, it feels like the final bouquet has a price tag attached to it.
Mika: That's an unpleasant bouquet.
Professor: That is precisely why it is important to check the status of document submissions and the contents of your withholding tax slip when receiving retirement money.
【Some income chosen not to be declared is not included in the 200,000 yen threshold】
Mika: By the way, what happens with stock dividends or profits from specific accounts? Do they count toward the 200,000 yen threshold for side jobs?
Professor: This is also important. When considering the total amount of income other than salary and retirement income, there are certain types of income that are not included. For example, dividends from listed stocks for which you have chosen not to file a tax return, capital gains from listed stocks in a specific account with withholding tax for which you have chosen not to file a tax return, and interest on savings that is subject to separate withholding taxation are treated as items not included in the 200,000 yen threshold. It is stated that the total amount of income other than salary and retirement income does not include certain dividends for which you have chosen not to file a return, capital gains in a withholding-selected account, or interest subject to separate withholding taxation. (National Tax Agency)
Mika: In other words, you don't just put everything into the 200,000 yen threshold for side job income.
Professor: That's correct. Here, too, the 'type of income' and 'taxation method' are important. Stocks, dividends, and interest can be treated differently from salary or regular side jobs.
Mika: Taxes look at the nature of the income, don't they? In terms of human relationships, it's like being asked, 'What is your relationship with this person?'
Professor: That is very close. Taxes check the identity of money by asking, 'Are you salary, remuneration, dividends, interest, or retirement money?'
Mika: It's like immigration control at an airport for money.
Professor: Depending on the type of passport, the gate you pass through is different.
【Three common misconceptions that company employees often make】
Mika: Professor, hearing this far, I can see the points where company employees often make mistakes.
Professor: Indeed. First, there is the misconception that 'because I am a company employee, I absolutely do not need to file a tax return.' While many people finish their obligations with the year-end adjustment, those with high salary income, those with side job income, or those with salary from two or more sources may need to file a return.
Mika: The second one is the assumption that "if your side income is 200,000 yen or less, you're totally safe."
Professor: Yes. While there are situations where you don't need to file an income tax return, that doesn't necessarily mean you're exempt from filing a resident tax return. Also, the 200,000 yen threshold depends on whether you're looking at revenue or income, and the perspective changes depending on whether the side work is classified as salary or a service contract.
Mika: Is the third one the assumption that "if it's been withheld at the source, that's the end of it"?
Professor: That's correct. Withholding tax can sometimes be considered a prepayment or a provisional payment. It doesn't always match your final tax liability. Especially if you have multiple sources of income or income other than your salary, you may need to file a tax return for the final settlement.
Mika: It's easy to think that the company handles everything regarding a salaried employee's taxes, but the company doesn't know about income earned outside of the company.
Professor: That is exactly the point. In principle, companies perform year-end adjustments based primarily on the salary they pay themselves. Money you earned editing videos on your days off, profits from online sales, salaries from other companies, or rent received from a family-owned company do not naturally fall into the net of the company's year-end adjustment.
Mika: The year-end adjustment is like a vacuum cleaner inside the company. It doesn't suck up the fallen leaves outside the house.
Professor: That is a very clear analogy.
【Documents to Gather First If You're Unsure Whether You Need to File a Tax Return】
Mika: So, if I'm not sure whether I should file a tax return, what should I check?
Professor: First, your withholding tax slip. Check whether you have one or more employers, what your salary income is, and what the withheld tax amount is. Next, if you have side income or fees, organize those income amounts and necessary expenses. If it's a service contract, you might have a payment record, but you need to track your income even if you don't have one. Furthermore, if you have stocks or dividends, check your annual transaction report for your specific account or dividend documents.
Mika: Withholding tax slips, payment records for fees, receipts for expenses, and annual transaction reports for specific accounts. In the world of taxes, the one who gathers the documents wins.
Professor: That is exactly right. The most difficult situation in tax consultations is when someone says, "I had some income," "I probably had some expenses," and "The documents are somewhere."
Mika: "Somewhere" is usually in a place where they can't be found.
Professor: Exactly. It's best to save documents the moment they are generated. If you look for them later, receipts disappear like ninjas.
Mika: Receipt ninjas. And they only disappear when you need them.
Professor: And sometimes they reappear from a different place during a tax audit.
【Filing a Tax Return as a Salaried Employee is a Verification Process, Not Something to Fear】
Mika: When I hear the term "tax return," it feels like a big deal.
Professor: It certainly looks intimidating at first. However, if you think of a salaried employee's tax return as a process of organizing the types and amounts of income and settling the parts not handled by the year-end adjustment, it becomes much clearer.
Mika: In other words, separate the 'part handled by the company' from the 'part I need to handle myself'.
Professor: Exactly. If it's just the salary handled by the company, it often ends with the year-end adjustment. However, if you have income outside the company, you must look at that part yourself. This is the basic rule.
Mika: So, even for company employees, when the world of income expands, the world of taxes expands as well.
Professor: Yes. Side jobs, investments, real estate, executive positions, retirement benefits. As the number of income sources increases, the number of tax check points also increases.
Mika: When the number of entrances increases, the number of doormats increases too.
Professor: And you need to keep a record of who came in through which entrance.
[Summary]
For most salary earners, income tax settlement is completed through the company's year-end adjustment. However, those whose salary income exceeds 20 million yen, those who receive salary from one source and have other income exceeding 200,000 yen, those who receive salary from two or more sources and have certain amounts of non-year-end-adjusted salary, executives of family-owned companies who receive interest on loans or rent for assets from the company, those who receive salary from someone not obligated to withhold tax, and those for whom the withheld tax amount is insufficient for retirement income may need to file a tax return.(National Tax Agency)
Mika: In other words, instead of thinking 'I'm a company employee, so tax returns don't concern me,' I should look at whether there is any income not handled by the company's year-end adjustment.
Professor: That's right. For company employees, the company takes care of a lot of the tax burden. However, you basically have to check any income generated outside the company yourself.
Mika: And the talk about the 200,000 yen side job threshold also changes depending on whether it's income or earnings, salary or outsourcing, income tax or resident tax.
Professor: You have organized that well. In tax matters, not only the 'amount' but also the 'type' and 'source' are important. Which income, which earnings, which tax. If you separate these, the topic of tax returns becomes much easier to understand.
Mika: In one word, to conclude?
Professor: Even as a company employee, if your income sources increase, check the exit for your tax return.
Mika: That's a great quote. If you add an entrance, you also need an exit sign.
Professor: In the world of taxes, if you only look at the entrance and get happy, you will be stopped at the exit.
Mika: And the one standing at that exit is the filing deadline, right?
Professor: Yes. And it doesn't like to wait.