When the leaves start turning yellow, employees beware
Your HR department will soon ask you to prepare
A set of declarations, about dependents and income
And insurance and mortgages and your spouse (if you have one)

In accordance with the ancient prophecy, it has now become time for the 2025 year-end adjustment questions thread!

The NTA's year-end adjustment information page is here and an English-language summary of Japan's withholding system for employees is here. The 2021, 2022, 2023 and 2024 threads may also be useful sources of information.

Which declarations are necessary?

This year employees are being asked to make seven types of declarations to their (primary) employer:

• Declaration regarding dependents
• Declaration regarding the basic deduction
• Declaration regarding a spouse
• Declaration regarding the special deduction for designated relatives (applicable to people with relatives aged 19-22 that earn too much to qualify as regular dependents)
• Declaration regarding exemption from income adjustment (applicable to people earning more than 8.5 million yen who have a disability, a relative or spouse with a disability, or a dependent aged 16-23)
• Declaration regarding insurance (including national pension, national health, iDeCo, life insurance, and earthquake insurance)
• Declaration regarding the residential mortgage tax credit

The NTA publishes templates for each of these declarations (including foreign-language versions of most of them), but employers are not obliged to use the NTA's templates. Many employers outsource collection of the declarations to online service providers, for example.

In any event, the NTA's templates combine the seven declarations into four separate forms, three of which are available in multiple languages:

• a form regarding dependents
• a form regarding the basic deduction, spousal income, designated relatives, and exemption from income adjustment
• a form regarding insurance
• a form regarding the residential mortgage tax credit (PDF here, Japanese-language only)

Even if your employer does not use the NTA's templates, it may be useful to take a look at them if you are uncertain about the information you are being asked to provide.

Side income

Employers cannot declare (or calculate the tax payable on) any income other than the income they paid to the employee (and any income paid by the employee's previous primary employer, in the case of an employee who changed primary employers during the year). The only way to declare side income is to file an income tax return (or—if you satisfy certain criteria—a residence tax return) after the year has ended.

However, as you will see from the NTA's template, the declaration regarding the basic deduction asks employees to estimate how much side income (i.e., income other than employment income received from their primary employer) they expect to have received by the end of the year. Primary employers are obliged to collect this information so that they can accurately calculate how much income tax is due on the employment income they paid to the employee.

You may ask: "why does the amount of side income I receive affect the amount of income tax due on the income I receive from my primary employer?" And until 2018, the answer for the vast majority of people would have been: "it doesn't". Indeed, many people will remember a time when there was no such thing as a "declaration regarding the basic deduction" and thus it was not typically necessary for employers to ask employees about side income.

However, since 2018, the introduction of total income tests for the spouse deduction and basic deduction have expanded the ways in which an employee's side income can affect the income tax due on their primary employment income. And the changes to the basic deduction that will come into effect as of December 1, 2025 (discussed at length in this post from August) represent a dramatic increase in the capacity for an employee's side income to affect the income tax due on their primary employment income.

Until last year, everyone earning less than 24 million yen received the same basic deduction. But as discussed in the post linked above (and as you can see from the NTA's template), there are now eight possible basic deduction values, depending on the employee's total income (including side income). These various basic deduction values are now the main reason that employers must ask employees to estimate their side income, as part of the year-end adjustment process.

What counts as side income?

The NTA has a PDF here outlining what counts as side income for the purposes of this declaration, but the short answer is that it includes all income you will be declaring on your income tax return (or residence tax return, if eligible).

Therefore, with respect to capital gains derived from the sale of shares and dividends paid on listed shares, what matters is whether you will be declaring such income on your income tax return or not. So if you received the dividends via a Japanese brokerage or you received the capital gains within a withholding-type designated (特定) account, and you intend to exercise your right not to declare that income on your income tax return, you should not include that income when you complete the declaration regarding the basic deduction.

Similarly, interest paid by Japanese banks cannot be declared on an income tax return, so it should not be included as side income, but interest paid by foreign banks must be declared on an income tax return (or residence tax return, if eligible), so it should be included.

What happens if the declaration is wrong?

If the amount of side income you end up receiving during 2025 is different to the estimate you provided to your employer, the consequences depend on whether you will be filing an income tax return.

If you will be filing an income tax return, any discrepancies between your employer's calculations and the actual income tax due on your primary employment income will be resolved when you file the income tax return. Accordingly, while your employer may have withheld too much or too little tax, you will not ultimately end up paying too much or too little tax, so there is nothing to worry about.

If you will not be filing an income tax return, you are relying on the accuracy of your employer's calculations. In that case you should notify your employer as soon as it becomes clear that your actual side income was different to the estimate you provided (especially if you underestimated). At that point, your employer will check whether the difference affects the income tax due on your primary employment income. If it doesn't, no further action is required. If it does, they should make the necessary adjustment (extra withholding or extra refund). In the worst case scenario (e.g., you don't tell them about the difference until mid-January or later), they will ask you to file an income tax return to resolve the issue.

A third scenario would be where you are not filing an income tax return but you are confident that the difference between your actual side income and your estimated side income is immaterial to the income tax due on your primary employment income. In that case, there would be no reason to notify your employer of the difference.

Can I opt out of the year-end adjustment process?

Yes, but if you believe in the time-value of money it would not be in your financial interests to do so.

The only way to opt out of the year-end adjustment process is to refuse to submit a declaration regarding dependents to your employer for the relevant year. In other words, to opt out of the 2025 year-end adjustment process, you would have needed to refuse to submit a declaration regarding dependents for 2025.

Employers are required to request declarations regarding dependents before the employee receives their first paycheck for the year. So your employer would most likely have asked you to submit a declaration regarding dependents for 2025 in or around November 2024. If you submitted the declaration at that time, you have already triggered a year-end adjustment for 2025.

That is also why employers are currently asking employees to effectively submit two declarations regarding dependents—one for 2025 (to check whether anything has changed compared to the 2025 version submitted last year) and one for 2026. If you do not want your employer to do a year-end adjustment at the end of 2026, you can refuse to submit the 2026 declaration at this time.

However, choosing not to submit a declaration regarding dependents has consequences. Specifically, it forces your employer to withhold income tax at much higher rates throughout the year. You can receive a refund of the excess tax when you file your income tax return after the year has ended, but you effectively lose the time-value of having that money (e.g., being able to invest it) over the intervening months.

This is also why people who are not subject to a year-end adjustment (because they earn more than 20 million yen from primary employment income) should still submit the declaration regarding dependents. The declaration effectively nominates the employer as their primary employer, ensuring that income tax is withheld at lower rates.

Perhaps it is also worth noting that you can only have a declaration regarding dependents on file with one employer at any given time. So if you are asked to submit the declaration by multiple employers, you need to choose which employer to nominate as your primary employer and only submit the declaration to that employer.

Usual disclaimer

Neither the information in this post nor the discussions in this thread are a substitute for professional advice. Users are encouraged to keep their questions broad, so as to avoid violating rule 3 (don't ask for professional advice).