Japan Puts Off Revising Taxation of Retirement Bonuses; Current System Favors Long-Time Employment at Same Company

Yomiuri Shimbun file photo
The government’s Tax Commission holds a meeting at the Prime Minister’s Office in June.

The government and ruling parties have decided not to include the tax system for company employees’ retirement bonuses in tax reforms to be compiled this autumn, according to sources.

The current system — which offers more favorable taxation on retirement bonuses the longer a person has continuously worked for the same employer — will be maintained for the time being.

For example, if an employee retires after working for the same company for 20 consecutive years, ¥8 million of their bonus is exempt from tax. If they retire after 30 years of continued employment, the tax-free amount rises to ¥15 million.

Thus, the longer a person worked for the same company, the greater the portion of their retirement bonus that is not taxed. The government believes this has helped discourage company employees from changing employers.

The Basic Policy on Economic and Fiscal Management and Reform, which the Cabinet approved in June, stipulated that the system would be reviewed. The government’s Tax Commission also called for the taxation of retirement bonuses to be reviewed, in a report it released in June.

However, revisions could reduce the after-tax income people receive from their retirement bonuses. As a result, many critical comments appeared, mainly in social media, saying the revisions are meant to put a heavier tax burden on company employees.

Senior members of the administration had to deny that the planned revisions were aimed at raising taxes on company employees.