[Essential Guide] Don't just look at your pay stub and be done with it. 5 things to check on your resident tax notice

I believe you receive your resident tax notice from your company along with your June pay stub.

Formally, the name varies slightly depending on the local government.
It may arrive with a long name like "Notice of Decision on Special Collection Tax Amount for Municipal Tax, Prefectural Tax, and Forest Environmental Tax Related to Employment Income."

The name is difficult, but the purpose of looking at it is simple.

It is a document that informs you how much resident tax will be deducted from your salary from June of this year to May of next year, based on last year's income and deductions.

Honestly, until now, even when I received these notices, I would just open them, take a quick look, and be done with it.
I would also just look at the net pay on my pay stub and be done with it.
My resident tax is high.
My social insurance premiums are also high.
That was about it.

However, when you read your resident tax notice, how you spent your money last year is returned to you in numbers.

Is your hometown tax donation (Furusato Nozei) reflected?
Are your insurance premium deductions included?
Is your iDeCo deducted?
What is the reason for the increase in resident tax?
How will you decide this year's hometown tax donation and investment amount?

You can check all of this.

This article does not deal with detailed tax calculations.
These are the 5 minimum things that employees should check on the resident tax notice they receive in June.

These are the 5 things to check.

First, how much is this year's resident tax?
Second, is your hometown tax donation reflected?
Third, are your insurance premium deductions and iDeCo included?
Fourth, the reasons why your resident tax increased or decreased.
Fifth, how to decide this year's hometown tax donation and investment amount.

Don't just receive your resident tax notice and be done with it.
June is the month to check your taxes and investment capacity all at once.

First, what does the resident tax notice represent?

The resident tax notice is a document that informs you how much your resident tax for the current fiscal year is.

For employees, resident tax is deducted from their salary.
This is called special collection.

Roughly speaking, it is a system where the company deducts resident tax from your monthly salary and pays it to the local government.

What is easy to misunderstand here is that the resident tax deducted from June is not a tax on this year's salary.

Basically, it is determined based on income from January to December of the previous year.

In other words, the resident tax notice you receive this June is a review of last year's results.

You made a hometown tax donation last year.
You submitted a life insurance premium deduction at the year-end adjustment.
You contributed to iDeCo.
You filed a tax return for medical expense deductions.
You used the housing loan deduction.

You can check how those have been reflected in this year's resident tax.

Looking at your payslip comes after that.
Compare whether the monthly resident tax written on the notice is reflected in the deduction column of your payslip.

Get a rough grasp of the overall picture of the notice

There are many numbers lined up on the resident tax notice.
You don't need to read everything from the beginning.

First, look at the general flow of how taxes are determined.

You have income from the previous year.
From that, you determine the amount subject to taxation.
From that amount, you subtract things that can be further deducted.
Finally, the tax amount is determined.

This is the flow.

What comes up here are "income deductions" and "tax credits."

The terms are a bit difficult, but the concept is simple.

Income deductions reduce the amount subject to taxation before the tax is calculated.
To use an analogy, it's like reducing the contents of your shopping basket a little before checking out at the register.

Life insurance premium deductions, social insurance premium deductions, dependent deductions, and iDeCo fall under this income deduction side.

On the other hand, tax credits are deducted from the final calculated tax itself.
To use an analogy, it's like getting a direct discount with a coupon after the amount to be paid at the register has been determined.

Furusato Nozei (hometown tax donation) and housing loan deductions are related to this tax credit side.

Roughly speaking,

Income deductions take effect before tax is calculated.
Tax credits take effect after the tax amount is determined.

This is the difference.

You don't need to memorize the detailed calculation formulas.
For now, it is enough to understand that there are deductions that "take effect before tax is calculated" and those that "are deducted directly from the tax."

1. How much is this year's resident tax

The first thing to grasp is this year's resident tax.

The annual tax amount and the monthly collection amount are written on the notice.
It shows how much will be deducted from your salary each month, in the form of June, July, and August payments.

First, look at these four things.

What is the annual tax amount?
How much is the June payment?
How much is the payment from July onwards?
Is there a significant discrepancy with the resident tax column on your payslip?

The amount for June may sometimes be slightly different.
This is because any fractions when dividing the annual tax amount into 12 payments may be added to the June payment.

Therefore, do not judge based on the June payment alone.
Also, check the monthly amount from July onwards.

Resident tax is similar to a monthly fixed cost.
Just like rent and communication expenses, it is money that is deducted from your take-home pay first.

If you decide on your investment amount without knowing this, your living expenses will become tight later on.

A dangerous sign is when your resident tax has increased significantly compared to the previous year, but you don't know the reason why.

A common cause is an increase in income from the previous year.

Pay raises.
Increased bonuses.
Side job income.
Increased overtime pay.

If you have had any of these, your resident tax will increase.

On the other hand, resident tax will also increase if your deductions decrease.

You are no longer a dependent.
Life insurance premium deduction decreased.
Stopped iDeCo.
Medical expense deduction is gone.
Furusato Nozei (hometown tax donation) is not reflected.

Such changes also affect your resident tax.

An increase in resident tax itself is not necessarily a bad thing.
If it is the result of an increase in income, it is a positive change.

The problem is when your take-home pay is decreasing without you knowing the reason.

2. Is your Furusato Nozei reflected?

If you have made Furusato Nozei donations, be sure to check this.

Furusato Nozei is not finished once you receive the return gift.
It is only complete once you have verified that it is reflected in the following year's taxes.

This is where you look on your resident tax notice.

Tax credits.
Donation tax credit.
Summary column.
Municipal tax credit amount.
Prefectural tax credit amount.

The display varies depending on the local government.
It may be clearly labeled as "Donation Tax Deduction."
It may also be combined with other deductions.

First, determine how much you donated in the previous year.

Donation history on the Furusato Nozei website.
Certificate of donation receipt.
Copy of your tax return.

Having these three things on hand makes it easier to check.

People who used the One-Stop Exception System generally do not receive an income tax refund.
Instead, it is reflected in the form of a reduction in the following year's resident tax.

In other words, those who used the One-Stop Exception System should check for the reflection in their June resident tax notice.

For those who filed a tax return, it is split between an income tax refund and a resident tax reduction.

There is a pitfall here.

If you filed a tax return for medical expense deductions or side jobs, the One-Stop Exception becomes invalid.
Even if you submitted a One-Stop application, if you file a tax return, you must also include your Furusato Nozei donations.

If you forget this, your Furusato Nozei donations may not be reflected.

These are the 5 warning signs.

You made Furusato Nozei donations last year, but there is no mention of a donation deduction on your notice.
You filed a tax return for medical expense deductions, but did not declare your Furusato Nozei donations.
You intended to use the One-Stop Exception, but you donated to 6 or more local governments.
You did not complete the address change procedure for the One-Stop Exception after moving.
The deduction amount is clearly too low compared to the donation amount.

If any of these apply, compare your donation history, tax return details, and tax notice to check.
If you find it difficult to judge for yourself, check with your local government or tax office.

Furusato Nozei is a convenient system for those who can use it.
However, this only applies if you stay within the limit and follow the correct procedures.

You need to confirm not just that you "did it," but that it was "actually reflected."

3. Are insurance premium deductions and iDeCo included?

Next, we will look at income deductions.

Representative examples include social insurance premium deductions, life insurance premium deductions, earthquake insurance premium deductions, and small enterprise mutual relief premium deductions.

For company employees, many people submit life insurance premium deductions and earthquake insurance premium deductions during the year-end tax adjustment.
Those who have iDeCo will fall under the small enterprise mutual relief premium deduction.

What we need to understand here is how the deductions are applied.

The insurance premium deduction is not a system where the premiums you paid are returned to you as is.
It is a system that reduces your income before taxes are calculated.

To use an analogy, it is like reducing the amount subject to tax before you pay at the register.
The premiums you paid are not returned to you in cash in their entirety.

Therefore, it is wrong to take out too much insurance just for the purpose of saving on taxes.

Insurance is for buying necessary coverage.
Deductions are something you can use as a result of that.

If you reverse this order, your monthly insurance premiums will become a burden.
And you will end up cutting into money that could have otherwise been invested.

It is not just the deduction amount you should look at.
You should also check your monthly insurance premiums at the same time.

Death coverage.
Medical coverage.
Cancer insurance.
Individual pension.
Savings-type insurance.

Separate what you are paying for in each case.

Keep it if it is necessary coverage.
Review insurance with ambiguous purposes.
Look at the burden of insurance premiums before tax savings.

This is the order.

iDeCo is a strong system in terms of taxes.
The full amount of contributions is tax-deductible.

However, in principle, it is a system for retirement funds.
You cannot withdraw it immediately.

It is attractive if you only look at taxes.
But it is not a system to contribute to forcibly when you have little in the way of emergency savings.

iDeCo is a system to be used over a long period with surplus funds.
Understand not just the tax savings, but also the balance with your available cash.

4. Check the reasons why your resident tax increased or decreased

Resident tax is determined based on the previous year's income and deductions.
Therefore, there is a reason why it increased or decreased.

The main reason for an increase in resident tax is an increase in the previous year's income.

Pay raises.
Increased bonuses.
Side job income.
Increased overtime pay.
Increase in reported income.

If you have any of these, your resident tax will increase.

Your resident tax will also increase if your deductions have decreased.

You are no longer a dependent.
Your life insurance premium deduction has decreased.
You stopped your iDeCo contributions.
You no longer have medical expense deductions.
The impact of your mortgage deduction has decreased.

Conversely, there are also reasons why your resident tax might decrease.

Your income from the previous year decreased.
You have more dependents.
Your hometown tax donations (Furusato Nozei) were reflected.
You started iDeCo.
You used medical expense deductions.
You included mortgage deductions.

The important thing is not to judge based solely on increases or decreases.

Resident tax increased.
Take-home pay decreased.
Therefore, it is bad.

It cannot be categorized that simply.

If it is the result of an increase in income, it is normal for taxes to increase.
On the other hand, if it is increasing due to missing deductions or failure to file, an inspection is necessary.

Tax figures are close to a report card for your household finances.
Your income, deductions, dependents, and how you use the system are returned to you as numbers.

Don't end it at 'it increased' or 'it decreased'.
Break down the reasons as well.

5. How to decide on this year's hometown tax donations and investment amounts

The June resident tax notice is a review of the previous year.
At the same time, it also serves as material for deciding this year's actions.

First, let's look at this year's hometown tax donations.

If your annual income and family structure have not changed significantly from last year, last year's notice can serve as a guide.
However, it is dangerous to use last year's figures exactly as they are.

This year's limit is determined by your projected income for this year.

You changed jobs.
You retired.
You are on childcare leave.
Your income is likely to decrease.
You have more dependents.
Your side income is changing.
You increased your iDeCo contributions.
Your medical expense deductions are likely to be large.
You have a mortgage deduction.

If you have changes like these, it is safer not to think in terms of the same donation amount as the previous year.

Hometown tax donation is not a system for pushing your limits.
It is a system to be used without straining your household finances.

If you receive food or daily necessities as return gifts, it will benefit your household budget.
However, if you exceed the limit, your out-of-pocket expense will not be limited to 2,000 yen.

Rather than thinking of it as a profitable system, it is safer to think of it as a system where you receive return gifts by prepaying a portion of the taxes you would have paid anyway.

Simulate based on this year's projected annual income.
Do not aim too close to the limit.
Adjust after your income projections solidify as the end of the year approaches.
If you plan to file a tax return, do not assume you will use the one-stop exception system.

We will cover these four points.

Next is the investment amount.

The investment amount should not be decided by enthusiasm.
Calculate it backwards from your take-home pay.

Look at your take-home pay, not your gross salary.
Understand your resident tax and social insurance premiums.
Subtract your fixed costs.
Subtract your living expenses.
Set aside money for unexpected expenses.
Based on that, decide how much you can invest each month.

Follow this order.

I want to max out my NISA.
I want to buy high-dividend stocks too.
I want to accumulate index funds as well.

I have those feelings too.

But if you decide on an investment amount that exceeds your monthly take-home pay, you won't be able to keep it up.
Investing is more powerful when you do it with an amount you can sustain.

The resident tax notice is material for reviewing that amount.

5-point checklist to look at on your resident tax notice

Just this table alone changes the meaning of reading your resident tax notice.

People who should use Furusato Nozei (hometown tax donation) and people who should be cautious

People who should use Furusato Nozei are those like this.

You are a company employee paying income tax and resident tax.
You can estimate your annual income for this year to some extent.
You can make donations without putting pressure on your living expenses.
You have a rough grasp of your upper limit.
You can use the return gifts as food or daily necessities.

For such people, it is easy to have a positive effect on household finances.

On the other hand, there are also people who should be cautious.

Your income this year is likely to drop significantly.
You have a job change, retirement, or childcare leave.
Your number of dependents has increased.
You have large medical expense deductions.
You have a home loan deduction.
The difference between the one-stop system and filing a tax return is unclear to you.
You are trying to donate right up to your upper limit.

In these cases, it is safer to leave yourself some leeway.

Furusato Nozei (hometown tax donation) is useful if you use the system correctly.
However, it does not mean that you will benefit from amounts exceeding the limit.

People with high insurance premium deductions should also check the details of their insurance.

It is better not to just look at whether the insurance premium deduction is included and stop there.

Just because there is a deduction does not mean that the insurance is the right choice.

If you are paying 10,000, 20,000, or 30,000 yen in insurance premiums every month, that money could also have been invested.

Of course, there is necessary coverage.

Families with small children.
Families with a home mortgage.
People who want to leave living expenses for their family in the event of an emergency.

In these cases, death benefit coverage is meaningful.

On the other hand, savings-type insurance with vague purposes or insurance you have continued to pay for without much thought should be reviewed.

Things to prepare for with insurance.
Things to prepare for with cash.
Things to grow through investment.

Separating these three things makes it easier to prevent overpaying for insurance premiums.

Taking out insurance because it saves on taxes.
This is the wrong order.

You have necessary coverage.
As a result, you can also use the deduction.

Think in this order.

Things to do in June

What to do in June is simple.

Take out your resident tax notice.
Take out the resident tax section of your pay stub.
Take out your withholding tax slip from the previous year.
Take out your donation history for Furusato Nozei.
Recall the deduction documents you submitted for the year-end tax adjustment.
If you are doing iDeCo, check if the contributions are included in the deduction.
If you used medical expense deductions or home mortgage deductions, compare the contents of your tax return with the notice.

With this, your taxes from the previous year and how you manage your money this year will be connected.

The star of June is the resident tax notice.
The pay stub is supplementary material to see if the resident tax is being deducted according to that notice.

Don't just end it by saying your take-home pay increased or decreased.
Connect how you used your money last year with how you are managing your money this year.

Summary

The resident tax notice you receive in June is not just for checking the amount of your resident tax.

How much is this year's resident tax?
Is your hometown tax donation reflected?
Are your insurance premium deductions and iDeCo included?
The reasons why your resident tax increased or decreased.
How to decide this year's hometown tax donation and investment amount.

These are the five things.

Use your pay stub to check if the contents of the notice are reflected in the monthly deduction column.

Investment amounts should not be decided by enthusiasm.
They should be calculated backwards from your take-home pay.

Don't just receive your resident tax notice and be done with it.
June is the month to check your taxes and investment capacity all at once.