A sudden bill from the tax office. The 'estimated tax payment' system that can cause panic if you don't know about it

One morning in July, an envelope arrived from the tax office.

Notice of Estimated Income Tax and Special Reconstruction Income Tax Payment

When I first received it, I had no idea what it was.

Looking at the amount, it was 158,000 yen.

Wait, do I have to pay this? What is this for?

I panicked and looked it up, and that was the first time I learned about this system.

🧩 Did you know why it comes so suddenly?

Estimated tax payment is a system where you 'prepay this year's income tax' if your previous year's income tax exceeded a certain amount.

The tax office automatically calculates the amount based on the previous year's tax return data and sends you a notice.

It is not something you file yourself.

It is calculated automatically, and the bill arrives automatically.

It applies to people whose income tax for the previous year (excluding withholding tax) was 150,000 yen or more.

Freelancers and sole proprietors with an annual income of 5 to 6 million yen or more are likely to be subject to it.

Conversely, it almost never comes in your first year as a freelancer.

It suddenly arrives in your second or third year, just when your income has started to increase.

It comes in July, just when you thought you were safe after getting through your tax return, so the mental blow is significant.

🔍 When and how much do you pay?

Estimated tax payments occur twice a year.

1st installment: July 1st to July 31st
2nd installment: November 1st to November 30th

The amount is one-third of the previous year's income tax for each installment.

For example, if your income tax for the previous year was 600,000 yen, you pay 200,000 yen in July and 200,000 yen in November.

The remaining 200,000 yen is settled during the final tax return in March of the following year.

In total, it is like paying your annual income tax in three separate installments.

The problem is that you need to have cash on hand in July and November.

If you operate under the assumption that you can just pay everything at once during the final tax return, you may face an unexpected expense in July that causes cash flow issues.

I honestly panicked the year I didn't know about this and had a low account balance.

💡 There is an option called 'Application for Reduction'

If your income this year is likely to be significantly lower than last year, you can reduce your estimated tax payments.

This is called an 'Application for Reduction'.

The application deadline is June 30th for the first installment and October 31st for the second installment.

To apply, you must submit an 'Application for Reduction of Estimated Tax Payment' to the tax office.

Electronic filing via e-Tax is also possible.

For example, if you are in a situation where a large project has ended and your annual income is likely to be less than half, submitting an application for reduction will lower the payment amount for the second installment.

Since you will be applying based on the tax amount calculated from your projected income for this year, you will need a rough estimate of your income.

My income dropped sharply in my second year, so while I paid the first installment in July, I filed for a reduction for the November payment.

As a result, my November payment was less than one-third of the usual amount.

That saved my cash flow for that year.

Knowing about the existence of the reduction application can make the difference between having tens of thousands to over a hundred thousand yen in cash left in your pocket.

🔍 Cash flow management for estimated tax payment measures

To get through estimated tax payments without stress, you need a financial plan in advance.

As of March, when you finish your tax return, calculate how much you will need for July and November of this year.

If your income tax from the previous year was 600,000 yen, you will need 200,000 yen each in July and November.

If you set aside 15,000 yen from your monthly sales, you will have 90,000 yen in six months.

All you have to do is create a separate 'tax account' and save a fixed amount there every month.

Whether or not you do this completely changes how you feel when you see that envelope in July.

It's the difference between thinking, 'Oh, I can just pay it from here,' and panicking, 'Wait, where am I going to get this money?'

That difference comes down to nothing more than whether or not you understand the system.

✅ Summary: One action you can take starting today

If your previous year's income tax exceeded 150,000 yen, be prepared to receive an estimated tax payment notice in July and November. If your income this year is likely to be significantly lower than last year, consider applying for a reduction by the end of June. Create a tax savings account and start setting aside a portion of your monthly sales. Are you prepared for the July and November tax payments starting now? Do you think the tax return is the only peak for taxes?

*This article is for general information purposes only. Please check with your local tax office, the e-Tax support desk, or your tax accountant for details on estimated tax payments and procedures for applying for a reduction.

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