Japan Severance Pay Calculator (退職金計算)
Compute the net take-home of a 退職金 (severance) payment under the favorable 退職所得 tax regime. Includes the 退職所得控除 deduction, the 1/2 rule with all carve-outs, separate-progressive tax, and the 20.42% no-申告書 trap.
Severance pay calculator
How it works
How Japanese severance is taxed (and why it's wildly favorable)
Severance income in Japan (退職所得) is taxed under one of the most generous personal tax regimes in the developed world. A 30-year career-ending severance of 30 million yen can have a tax bill of around 800,000 yen, against a regular-income equivalent that would exceed 8 million yen at full marginal rates. Three favorable mechanisms work together under Article 30 of the Income Tax Act: a large service-year-scaled deduction, a 1/2 rule on the post-deduction amount, and a separate-progressive (分離課税) calculation that is not aggregated with other income.
1. Round service years up
Service years (勤続年数) are rounded UP to the next full year. 20 years and 1 day counts as 21 years for the deduction. This is the single biggest one-day difference in Japanese personal tax: working one extra day past an anniversary can be worth 700,000 yen of additional deduction (above 20 years).
2. 退職所得控除額 (the deduction)
The deduction scales with service years:
- Service ≤ 20 years: 400,000 yen × service years (minimum 800,000 yen)
- Service > 20 years: 8,000,000 yen + 700,000 yen × (service years − 20)
- Disability retirement (障害退職): add 1,000,000 yen on top
Worked example: 25 years of service → 8,000,000 + 700,000 × 5 = 11,500,000 yen deducted before any tax math runs.
3. The 1/2 rule (and its two carve-outs)
For most employees, the post-deduction amount is halved before tax brackets apply:
課税退職所得金額 = (gross − 退職所得控除額) ÷ 2
This is the famous half-rate treatment. But since FY2022 there are two important carve-outs:
- 特定役員退職手当 (officer ≤ 5 years): Officers (役員) leaving with 5 or fewer years of service get NO 1/2 reduction. The full post-deduction amount is taxable. This was introduced to prevent abuse via short-tenure officer appointments.
- 短期退職手当 (rank-and-file ≤ 5 years, FY2022+): Regular employees leaving with 5 or fewer years get the 1/2 reduction only on the first 3 million yen of the post-deduction amount. The portion above 3 million yen is fully taxable.
4. Separate-progressive tax (分離課税)
The 課税退職所得金額 is taxed using the standard income tax brackets (5%, 10%, 20%, 23%, 33%, 40%, 45%) but it does not aggregate with other income for the year. This is a huge advantage over countries that pile severance on top of salary at marginal rates. The reconstruction surtax (復興特別所得税) of 2.1% is added on top of the income tax.
5. Resident tax: flat 10% (no per-capita component)
Resident tax on severance is uniquely simple: 10% flat on the same 課税退職所得金額 figure used for income tax. No per-capita component (均等割), no aggregation with other income. Withheld by the employer at the time of payment.
6. The 20.42% trap (no 申告書)
Here's the catch: all of the favorable treatment above only applies if the employee submits 「退職所得の受給に関する申告書」 (statement on receipt of severance income) to the employer at the time of payment. If the form is not submitted, the employer must withhold 20.42% on the GROSS severance with no deduction and no 1/2 reduction. The over-withholding can be recovered via 確定申告 the following year, but the cashflow impact is usually millions of yen on a typical career-ending severance. Always file the form. The calculator shows the comparison.
7. Worked example
Career-ending severance of 25,000,000 yen for an employee with 30 years of service (no disability, no officer status, 申告書 submitted):
- Deduction: 8,000,000 + 700,000 × 10 = 15,000,000 yen
- Excess: 25,000,000 − 15,000,000 = 10,000,000 yen
- Taxable: 10,000,000 ÷ 2 = 5,000,000 yen
- Income tax: 5,000,000 × 20% − 427,500 = 572,500 → × 1.021 = 584,520 yen
- Resident tax: 5,000,000 × 10% = 500,000 yen
- Total tax: ~1,084,520 yen → net ~23,915,480 yen (95.7% of gross)
Compare to 20.42% flat without 申告書: 25,000,000 × 20.42% = 5,105,000 yen withheld → net 19,895,000 yen. Filing the form is worth ~4 million yen in upfront cashflow.
Reference
Key terms and concepts
退職所得 (severance income, separate progressive)
A separately-taxed income category under Article 30 of the Income Tax Act. Calculated as (gross severance − 退職所得控除額) × 1/2 in standard cases, then taxed using the regular progressive brackets but without aggregation against other income for the year.
退職所得控除額 (deduction)
Service-year-scaled deduction. ≤20y: 400,000 × years (min 800,000). >20y: 8,000,000 + 700,000 × (years − 20). +1,000,000 for disability retirement. Years are always rounded UP.
申告書 (退職所得の受給に関する申告書)
The form an employee submits to the employer at the time of severance receipt to elect the favorable separate-progressive treatment. Without this form, the employer must withhold 20.42% on the gross.
特定役員退職手当 (officer ≤5y, no 1/2)
Officers (役員; directors, audit committee members, executives in the corporate-law sense) leaving with 5 or fewer years of service get the full post-deduction amount taxed without the 1/2 reduction. Introduced to prevent abuse via short-tenure officer appointments.
短期退職手当 (rank-and-file ≤5y, partial 1/2)
Effective FY2022. Regular employees with 5 or fewer years of service get the 1/2 reduction only on the first 3 million yen of the post-deduction amount; the portion above 3 million is fully taxable.
分離課税 (separate progressive)
Tax computation that does not aggregate with other income for the year. Severance income is taxed in its own bracket calculation, regardless of how much salary, bonus, or capital gains the employee earned that year. This prevents marginal rates from spiking.
復興特別所得税 (reconstruction surtax)
A 2.1% surtax on the income tax amount (not on the income itself), applicable from 2013 through 2037. Implemented to fund Tohoku reconstruction. Applies to severance income tax just as it does to regular income tax.
Frequently asked
Common questions about Japan severance pay
Is severance pay legally required in Japan?
No. There is no statutory severance pay obligation. However, virtually all mid-size and large employers have severance provisions in their work rules (退職金規程), and once provided to existing employees these become contractually enforceable. Once you offer severance, you cannot unilaterally cancel it for existing employees without serious legal risk.
What is a typical severance multiplier (支給率)?
Common formula: base salary × service years × multiplier. Multiplier varies by reason: 自己都合 (voluntary) often 0.5–0.8 in early years rising to 1.0–1.5 at long tenure; 会社都合 (company-initiated) often 1.5–2.5x of voluntary. Disability and death typically use the company-initiated rate or higher. Specifics depend on the work rules.
How are 中退共 lump-sums treated?
中退共 (Smaller Enterprise Retirement Allowance Mutual Aid) lump-sums received as severance are taxed as 退職所得 in the same favorable regime. When received in the same year as a separate company severance, special aggregation rules under the income tax law apply: the deduction is computed considering the longest service period among all sources to prevent double-counting.
What about iDeCo / DC plan lump-sums?
Lump-sum withdrawals from iDeCo and corporate DC plans are also 退職所得. Important: there's a 5-year rule when DC lump-sum is received first, then severance; the deduction can be reduced if received within 5 years; and a 19-year rule the other way around. Pension lump-sums from 国民年金基金 also fall under similar rules. Multi-source planning often saves millions.
If a company has no work rules on severance, can it still pay one?
Yes. Discretionary severance payments (功労金 or 退職功労金) can be paid even without formal work rules. They are still treated as 退職所得 for tax purposes if they are clearly tied to retirement and not ordinary salary. Documentation is critical; keep board minutes or written records.
What if the employee dies before receiving the severance?
死亡退職金 (death severance) paid to the family within 3 years of death is treated as inheritance, not severance income, and falls under inheritance tax with a separate 5,000,000 yen × number of statutory heirs deduction. After 3 years, it becomes ordinary income to the family.
Can the employer pay severance in installments instead of a lump sum?
Yes; installment severance (年金型 / 退職年金) is taxed as 雑所得 (miscellaneous income) under the public pension framework, not as 退職所得. The favorable 退職所得控除 + 1/2 rule does not apply. Most employees prefer the lump-sum form for the tax savings, even though installments can be more cashflow-friendly for the employer.
How does this differ from a settlement payment (解決金)?
A 解決金 paid to terminate an employment dispute can sometimes qualify as 退職所得 if it is clearly compensation for the loss of employment, but it can also be classified as ordinary income (給与所得 or 一時所得) depending on the structure and documentation. Tax classification of settlement payments is contested and should be agreed with a tax accountant before signing.
Important. This calculator implements the standard 退職所得 separate-progressive regime under Article 30 of the Income Tax Act, FY2025 baseline. Edge cases (multiple severance sources in the same year, 5-year/19-year ordering with DC plans, death severance, settlement payments, foreign-tax-credit interactions) require individualized analysis. Consult a tax accountant (税理士) or licensed sharoshi (社会保険労務士) for binding answers.