Reporting taxes in Japan is simple if you work for a company. It’s also simple if you do full-time freelance work. What’s complicated is when your work status is like mine, even my experienced accountant has never met anyone in the same situation. Thankfully, he knows his stuff and advised me accordingly.
If you work for a company, your company will handle all your tax issues for you, so you don’t have to do anything. Also the reason why most people are clueless about tax. If you do full-time freelance work, just keep all your receipts and withholding tax slips and have an accountant do it for you if you don’t want to do it yourself. Note: receipts from convenience stores cannot be marked as expenses.
But if you work for a company and also have work on the side, that becomes slightly complicated. Even more so if some of your clients withhold taxes and some don’t.
First, if you have a day job and your side income comes up to less than 200,000 yen a year, you do not have to report the income from your side job. Yes, you can keep it in its entirety. Only if it exceeds 200,000 yen, will you have to report it because it should be taxed.
Now, here’s the thing. If part of the side income you’re receiving is withheld in taxes every month, regardless of whether it exceeds 200,000 yen or not, it would be wise for you to file it in your annual tax filing. The reason is because, the amount of tax withheld is typically more than what is necessary for you to pay. If you don’t file it, you would be paying more taxes than you should. Filing it would mean part of those income will be returned to you. Unfortunately, even if the total is under 200,000 yen, you will not get back the full sum because “it does not have to be taxed” is not equivalent to “it cannot be taxed.”
That’s it for taxes. Now, let’s move on to pension and health insurance.
The current law states that if a staff member works for at least 3/4 the number of days of business operation in a week at a company, the company has the duty to pay for their social insurance, i.e. health insurance and welfare pension (note that there is discussion going on to make that requirement stricter to 1/2). Otherwise, it is up to the company and staff to negotiate a deal. So which should you negotiate?
Let’s break things down.
There are two main types of health insurance:
1) Social health insurance
2) National health insurance
Likewise, there are two main types of pensions schemes:
1) Welfare pension
2) National pension
If you are a full-time employee at a company, you would be having #1 (i.e. social health insurance and welfare pension). Otherwise, you would typically have to take option #2 (i.e. national health insurance and national pension). So, what’s the difference?
Social health insurance and welfare pension premiums are based on your salary only, which means no matter how much you make on your side income, the premium you pay will not increase. It only fluctuates based on your day job income. Since welfare pension is more expensive than national pension, the payout after retirement is also much bigger.
On the other hand, national health insurance premiums are based on the total of your salary income and side income. So, no matter which part of your income increases, the premium you pay will increase. However, the national pension premium costs the same for everyone regardless of your income, which is why the payout is less.
At this point, it’s hard to tell which saves you more money.
If your work hours is more than required for the company to be obligated to pay for your insurance, then you don’t have a choice but to take #1. Otherwise, the company will likely prefer you go with #2 since they don’t have to incur costs for your social insurance. It wouldn’t make much difference if your salary and side income is about the same, but if your side income is much greater (for example, double your salary), then it would be wiser to negotiate for #1, where premiums will only be based on your salary. This will cause the company to incur more expenses for your employment, but it’s worth negotiating because if you can get it, it will save you a lot of money since your side income will not be factored into the cost of insurance and pension premiums.