An individual in Japan who makes 3.6 million yen (USD $36,000 at JPY100/USD) gets an exclusion of JPY 1,250,000. Their net is 2,340,000.
A personal deduction of JPY 380,000 is available. So the net drops to 1,960,000.
If that individual is enrolled in Shakai Hoken, about 12% of the original 3,600,000 is paid toward that. So that is 432,000 yen. It’s also a deduction against taxes. The net taxable drops to 1,528,000 yen.
Two taxes will be assessed on the 1,528,000 yen. One is the national tax, which at 1,528,000 will be 5%. This is 76,400 yen.
The other will be resident’s tax. Other than a small per capita, the rate will be 10%. So 152,800 yen.
The person who makes 3.6 million yen then will pay, in the end:
JPY 432,000 social insurances
JPY 76,400 national tax
JPY 152,800 residents tax.
This is totaling JPY 661,200 and represents 18.37% of the gross.
Any additional earnings above the 3.6 million yen will see a marginal tax-and-insurance rate of about 20.7%. This is because the insurance is deductible, and there is the generous exclusion referred to at the top, which rises as income rises. The algebra for that is:
5% national tax times 70% net of increased exclusion, or (.05)(.7) = 3.5%
10% resident’s tax times 70% net of increased exclusion, or (.1)(.7) = 7%
12% estimated social insurance, deductible against other taxes, or (.12)(.85) = 10.2%.
Those three items together sum to a 20.7% marginal rate, all inclusive.
People going around saying that Japanese taxes plus social insurance “quickly rise to 38% or more!” are full of it. When they put themselves out as big businessmen, or longtime successful businessmen, it makes me suspicious why they can’t do that simple algebra. If they are running a payroll and paying social insurance for their employees, they should know this.
Fact is, taxes in Japan at modest income are lower than they are in America. At modest incomes, increased income is taxed at a lower effective rate than it is in America.