Key facts at a glance
Retirement deduction (退職所得控除)
¥400k/yr
Up to 20 years, then ¥700k/yr, min ¥800,000
Halving rule (2分の1課税)
50%
Only half the post-deduction amount is taxed
Resident tax on payout
10% flat
Withheld at source, no year-long delay
Here's the number before the mechanism: a ¥10,000,000 retirement payout after 15 years of service owes just ¥304,652 in total tax, an effective rate of about 3%. The same ¥10,000,000 taxed as if it were ordinary salary income would owe roughly ¥2,801,044, over nine times more. That gap exists because of two deliberate features of Japan's tax code for retirement income (退職金, taishokukin): a large deduction that grows with years of service, and a rule that halves whatever's left before normal tax rates apply.
This is one of the most taxpayer-friendly corners of Japan's income tax system, and it's worth understanding precisely, both for planning around a job change and for understanding why long-tenure employment carries a real financial incentive built into the tax code itself.
Calculate the tax on your own retirement or severance payout.
Open the Retirement Payout CalculatorThe mechanism: deduction first, then halving
The calculation runs in a fixed sequence. First, the retirement income deduction (退職所得控除) is subtracted from the gross payout. The deduction formula is tiered by years of service: ¥400,000 per year for the first 20 years, with a guaranteed floor of ¥800,000 even for very short tenures, then ¥700,000 for every year beyond 20. The jump in the per-year rate after 20 years is deliberate, it rewards long tenure disproportionately.
Second, whatever amount remains after the deduction gets HALVED before any tax rate is applied. This is the halving rule (2分の1課税), and it applies on top of, not instead of, the deduction. Only that final halved figure, called taxable retirement income (退職所得の金額), gets run through the normal 7-bracket national income tax schedule (5% to 45%), the 2.1% reconstruction surtax, and a separate flat 10% resident tax. Both steps compound: a large deduction shrinks the base, then halving shrinks it again.
Same ¥10,000,000 payout, five different service lengths
The gross payout stays fixed at ¥10,000,000. Only the deduction, and therefore the final taxable amount, changes with years of service.
| Years of service | Deduction | After deduction | Taxable (halved) |
|---|---|---|---|
| 5 years | ¥2,000,000 | ¥8,000,000 | ¥4,000,000 |
| 10 years | ¥4,000,000 | ¥6,000,000 | ¥3,000,000 |
| 15 years | ¥6,000,000 | ¥4,000,000 | ¥2,000,000 |
| 20 years | ¥8,000,000 | ¥2,000,000 | ¥1,000,000 |
| 25 years | ¥9,500,000 | ¥500,000 | ¥250,000 |
At 25 years, the deduction alone shelters ¥9,500,000 of the ¥10,000,000 payout, leaving just ¥250,000 subject to tax. Run any payout amount and service length through the Japan Retirement Payout Calculator for the exact figures.
How much lighter this is than ordinary income
On a ¥20,000,000 payout after 25 years of service, total tax under retirement income rules is roughly ¥856,373, an effective rate of about 4.3%. Taxed as ordinary salary instead (no deduction, no halving, straight through the national brackets plus flat 10% resident tax), the same ¥20,000,000 would owe roughly ¥7,313,284, more than eight times as much. The difference, about ¥6,456,912 in this example, is entirely attributable to the deduction and halving rule.
This is exactly why employers and employees alike often prefer structuring a departure payment as a formal retirement/severance payout under 退職金 rules rather than as additional salary or a bonus, when the option genuinely exists and the payment qualifies. The tax outcome is dramatically different for an identical amount of money.
One thing that's NOT delayed here: resident tax
Ordinary salary resident tax in Japan lags a full year, this year's bill is based on last year's income (see our separate article on how that works). Retirement income resident tax breaks that pattern: it's a flat 10% withheld directly at the time of the payout itself, applied to the same halved taxable retirement income figure used for national income tax. There's no following-year catch-up bill to plan around for the retirement payout specifically, though your ordinary salary from the year of departure will still generate its own resident tax bill the following year under the normal rules.
Work out the tax on your own payout
Enter your payout amount and years of service to see the deduction, the halved taxable amount, and how much tax you'd save versus ordinary income treatment.
Open the Japan Retirement Payout CalculatorMonthly briefing
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Frequently asked questions
What exactly is 退職金 (taishokukin) and who gets it?
Taishokukin is a lump-sum retirement or severance payment, common at Japanese employers (though not legally mandatory unless specified in an employment contract or company rules). It's typically paid when an employee retires, resigns after a meaningful length of service, or is made redundant, and the amount usually scales with years of service and sometimes final salary or job grade. Many long-tenure Japanese employees treat it as a core part of retirement planning, alongside the public pension.
What is the retirement income deduction (退職所得控除) formula?
For 20 years of service or fewer, the deduction is ¥400,000 multiplied by years of service, with a guaranteed minimum of ¥800,000 even for a single year. For more than 20 years, it's ¥8,000,000 plus ¥700,000 for every year beyond 20. So 10 years gives a ¥4,000,000 deduction, 20 years gives ¥8,000,000, and 30 years gives ¥8,000,000 + (¥700,000 x 10) = ¥15,000,000. A partial year of service rounds up to a full year for this calculation.
How does the halving rule (2分の1課税) actually reduce the tax?
After the deduction is subtracted from the gross payout, only HALF of whatever remains is treated as taxable retirement income (退職所得), and normal progressive tax rates apply only to that halved figure. On a ¥10,000,000 payout after 15 years of service, the ¥6,000,000 deduction leaves ¥4,000,000, and halving brings the taxable base down to just ¥2,000,000, less than a fifth of the original payout. That's why total tax on a large retirement payout is often just a few percent of the gross amount, dramatically lower than the same sum taxed as ordinary salary.
Is the halving rule still in effect for 2026, given the tax reform discussion?
Yes, as of the 2026 tax year, the standard halving rule remains in effect for the common case of an employee with more than 5 years of service. Japan's tax reform panel has publicly discussed reviewing retirement income taxation, partly because the current structure can incentivize staying at one employer for 20+ years specifically to maximize the deduction step-up, but no enacted change to the core formula or halving rule had taken effect at time of writing. Always confirm the current rule with your employer's payroll team or the National Tax Agency before relying on it for major financial planning.
Are there exceptions where the halving rule doesn't fully apply?
Yes, two, both tied to short service. A company officer or executive (yakuin) with 5 years of service or less gets no halving benefit at all on their payout (特定役員退職手当等). A regular employee (not an officer) with 5 years of service or less keeps the halving benefit only on the first ¥3,000,000 of post-deduction income, anything above that is taxed in full (短期退職手当等, introduced from January 2022 to close a loophole around structuring short employment periods around large payouts). Neither exception affects the much more common case of an employee with more than 5 years of service.
How do I actually get this favorable tax treatment on my payout?
Submit a "Notification of Retirement Income Adjustment" (退職所得の受給に関する申告書) to your employer before you receive the payout. With that form on file, your employer withholds the exact, correctly calculated final tax automatically, and in most cases there's nothing further to file. Without it, your employer is required to withhold a flat 20.42% instead, a higher, provisional rate, and you'd need to file a tax return afterward to claim back the overpaid difference. Ask HR or payroll for the form well before your final payout date.
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