How it is calculated
Years of service = service period (any part year rounds up to a full year) Retirement income deduction = ¥400,000 × years (minimum ¥800,000); over 20 years: ¥8 million + ¥700,000 × (years − 20) Retirement income = (allowance − deduction) × 1/2 (rounded down to ¥1,000) Income tax = bracket tax × 102.1% Resident tax = retirement income × 10% (6% municipal + 4% prefectural) Take-home = allowance − income tax − resident tax
- Disability retirement: If you retire directly because of a disability, ¥1 million is added to the deduction.
- Short-service allowance: For 5 years of service or less (non-officers), the 1/2 rule applies only to the first ¥3 million of (allowance − deduction); the rest is taxed in full.
- Specified officer allowance: Officers with 5 years of service or less get no 1/2 reduction.
Retirement income deduction table
| Years of service | Deduction (¥) |
|---|---|
| 2 years | 800,000 (minimum) |
| 10 years | 4,000,000 |
| 20 years | 8,000,000 |
| 22 years | 9,400,000 |
| 30 years | 15,000,000 |
| 38 years | 20,600,000 |
No tax is due if the allowance does not exceed the deduction. Income tax uses the same 5–45% quick table as the salary calculator.
Example: ¥20 million after 22 years
Assumes you submitted the Declaration for Receipt of Retirement Income to your employer.
| Item | Amount (¥) |
|---|---|
| Retirement allowance | 20,000,000 |
| Deduction (¥8M + ¥700,000 × 2) | 9,400,000 |
| Taxable retirement income ((¥20M − ¥9.4M) × 1/2) | 5,300,000 |
| Income tax ((¥5.3M × 20% − 427,500) × 1.021) | −645,782 |
| Resident tax (¥5.3M × 10%) | −530,000 |
| Take-home | 18,824,218 |
About 94% is kept. Without the declaration, 20.42% (¥4,084,000) is withheld and the difference of ¥3,438,218 is refunded through a tax return.
Things to watch
- With the declaration submitted, your employer withholds the exact tax, so a tax return is usually unnecessary. Without it, 20.42% is withheld and settled through a tax return.
- If you received another retirement allowance in the same year, or a defined-benefit pension or iDeCo lump sum in a nearby year, the deduction can shrink for overlapping service (not modeled here).
- From 2027 the reconstruction surtax drops to 1.1% and a new 1% defense special income tax is added, so the combined 2.1% and the withholding calculation stay the same. This calculation is for payments in 2026.
- Taking the allowance as an annuity is taxed as miscellaneous income from public pensions and works differently.
Frequently asked questions
Are social insurance premiums charged on a retirement allowance?
A lump-sum retirement allowance is normally not salary or a bonus, so no health insurance or pension premiums are charged.
How different is the deduction at 20 and 21 years?
¥8 million at 20 years and ¥8.7 million at 21 — each year beyond 20 adds ¥700,000.
When is the resident tax paid?
Not the following year: your employer withholds it when paying the allowance and remits it to the municipality.