Overview

Process to reconcile annual income tax for employees. Declaration forms (dependent exemption, basic exemption, insurance premium deduction) are distributed to employees from November 1, collected back, and adjustments are made with the final salary payment of December, to be completed by December 31.

Schedule

Applicability

• Applicable to: Kabushiki Kaisha (KK), Godo Kaisha (GK), Individual
• Requires paying salaries

Authority

Additional Details

Year-end adjustment (年末調整) is the process by which employers reconcile the total income tax withheld from employee salaries throughout the year against the actual annual tax liability. The difference is settled in the December (or January) salary payment. Eligible employees are those who have submitted the Declaration of Dependent Exemption (給与所得者の扶養控除等（異動）申告書). Employees with annual salary exceeding ¥20 million are excluded and must file their own tax return. Key steps: 1. Around November: Distribute and collect various declaration forms (dependent exemption, basic/spousal/income adjustment deductions, insurance premium deduction, housing loan deduction) 2. December: Finalize annual salary totals, calculate deductions, and settle over/under-payments 3. January: Prepare and issue withholding tax certificates (源泉徴収票), submit statutory records summary and salary payment reports

Penalties for Non-Compliance

There is no direct penalty for failing to perform year-end adjustment itself, but leaving withholding tax discrepancies unresolved creates the following risks: • Underpayment: Non-payment penalty (国税通則法 Art. 67) of 10% (5% if self-corrected) plus delinquent tax • If employees suffer disadvantages from the employer's failure to adjust (e.g., not receiving a rightful refund), the employer may face liability • Failure to issue or falsifying withholding tax certificates (源泉徴収票) is punishable by up to 1 year imprisonment or a fine of up to ¥500,000 (Income Tax Act Art. 242)

Legal Basis