Announcement on Declarations of Exemptions for Dependents of Employment Income Earners for 2020
The deadline to submit declarations of exemption for dependents, etc. for 2020 is approaching. Because there are multiple areas which have been affected by tax reform, it is recommended that filers confirm the revised points in advance so as not to be flustered at year-end/during the New Year holidays.
Effects of Various Revisions
2018’s tax reform caused the employment income deduction to be reduced uniformly by 100,000 yen, while the basic deduction was increased by the same amount. This will be applied to income tax in and after 2020. Documents such as withholding tax amount tables, etc., will be modified from January, 2020.
Since the basic deduction amount rises by 100,000 yen while the employment income deduction decreases by the equivalent amount, this reform will not result in an increase of income tax overall – except for those with large amounts of employment income.
Concerning residence tax, for wage earners’ declarations of exemptions for dependents and others, under the revised local tax law an additional field (“single child-rearer”) will be created. This was introduced to exempt from residence tax those who are unmarried, receiving child-rearing allowances, and earning below a certain level of income.
This new measure was taken due to the fact that tax reductions for widows/widowers had not thus far been applied for the unmarried, while a person whose spouse died or who divorced could apply to receive tax reductions as a widow(er) through a tax deduction.
Changes in Requirements Concerning Total Income to Receive Various Deductions
Regarding income tax for 2020 and after, to receive various deductions, the total income limits for dependent relatives, etc., will rise by 100,000 yen in each category listed below. It is necessary that a salaried employee’s declaration of exemption for dependents and others be submitted to the salary payer by the day prior to the first payday on or after January 1, 2020.
Salaried employees are required to submit declaration forms, on which their estimates of the annual incomes of their spouses and/or dependent relatives are to be filled in, by the above due date. If the estimates change, income tax paid for the year will be adjusted by year-end adjustment.
Total income limits
Same-household spouse, dependent relatives
480,000 yen or less (currently 380,000 yen or less)
Spouse subject to payroll reduction
950,000 yen or less (currently 850,000 yen or less)
Spouse subject to special exemption for spouse
from 480,001 – 1,330,000 yen (currently from 380,001 – 1,230,000 yen)
750,000 yen or less (currently 650,000 yen or less)
Under the revised law, the requirement concerning the total amount of income just increases by 100,000 yen due to the basic deduction amount rising by 100,000 yen.
Therefore, please be aware that this does not mean that the spousal exemption and/or the exemption for dependents will be obtained more easily.
A New Rewards System to be Carried Out Involving Obtaining “My Number” Cards
A new point system will apparently be introduced in order to promote the My Number card, the diffusion of which is still low. Let’s take a detailed look at this.
Current Status and Issues with the “My Number” Card
Four years have passed since the “My Number” ID card system was introduced, but only 14% of Japan’s population has obtained such cards, which is an extremely slow pace. According to a process being carried out by the government, acquisition of the ID cards by all national government officials and local government employees during the year 2019 is being promoted.
Also, in order that residents can make full-fledged use of My Number cards as health insurance cards from March 2021, at the time of issuance and renewal of health insurance cards, the government is pushing the acquisition and initial registration of My Number ID cards for businesses and insured individuals. The government is assuming that the majority of the insured in health insurance cooperatives, the Japan-Health Insurance Association, etc., will have obtained such ID cards by fiscal year 2022.
From January 2022, preservation of receipts pertaining to medical expenses won’t be required when a person gets medical information utilizing ‘Mynaportal’ (“My Number” portal) when producing a tax return.
Additionally, as part of promoting the digitalization of tax payment procedures, mechanisms will be constructed to make it possible via ‘Mynaportal’ to obtain all at once the information needed for year-end tax adjustment procedures and producing tax returns, to pre-populate one’s return. The information is to include: insurance premium deduction certificates; housing loan balance certificates; donation receipt certificates; income-related information; and so on.
Furthermore, by utilizing a notification function of ‘Mynaportal’, the government is working to expand the usage of electronic tax payment certifications, with tax return-related information, guides to various types of explanatory meetings, etc. It certainly seems that accessibility itself will improve; however, several major psychological hurdles remain, including the requirement that residents go to a public office for the card issuance.
Therefore, the effects of these new policies may be limited, if one is asked if the number of My Number card acquirers will suddenly increase.
Overview of the New Point System
Now the government is playing its trump card – that is, a new point system with the goal of increasing the diffusion of the My Number cards.
The new point system will be introduced as a temporary special measure in 2020 following the end of the ‘rebate program to promote cashless payments at small shops’ being conducted for nine months after the consumption tax hike of October 1. As opposed to the initially-planned local government level, it is now being considered as a collaboration with mobile payments businesses, aiming for a point system common to the entire nation.
If a My Number card acquirer deposits a fixed sum of money into their smartphone payment account (which is opened using the card as an ID), he/she can receive ‘Minapoint’ (“My Number points”) provided at national government expense. Using such ‘Minapoint’, the person will be able to make >smartphone-based payments based on QR codes, or make purchases from online shops. Execution of the plan is apparently planned during the year 2020. The government is beginning public-private meetings with the objective of solidifying the system design.
The government seemingly expects that almost all residents will have “My Number” cards by the end of March 2023. However, to a large degree this will depend on how beneficial the point system is perceived to be. No matter how many points they receive, it is likely that many people will not go out of their way to obtain such a card if it’s not worth the effort required to obtain it.
How to Distinguish between Salaries and Subcontracting Costs?
As work styles diversify these days, the number of sole proprietors is tending to increase.
There are some situations in which an employment contact is judged to be in effect, even if an employment contact has not actually been signed. Let’s sign contracts taking into account not only their form, but also their true nature.
How to distinguish between employment income and business income
With the recent diversification of working patterns, the number of sole proprietors working under business entrustment contracts and service contracts is increasing. Though independent contractors (self-employed), in reality many of these workers are in situations very close to that of being employees. In correlation with the changes in working patterns, it would be recommended to judge whether income is employment income or business income (subcontracting costs), utilizing the following five factors – though their distinctions are sometimes unclear.
1. Whether or not there is a substitute In the case of a salary being paid based on an employment contract, an employee receives the value of his/her labor. On the other hand, in the case of business income, a person who contracts a job doesn’t necessary work on it by themselves. Instead, he/she may hire a third party who does at least part of the work. When the service/labor provider is limited to the contracting party, it can be said that there is no substitute, strengthening the applicability to employment income.
2. Whether or not there are restrictions In a situation where work days/hours are fixed, or are managed by an attendance book, a timecard or by reporting to someone, it will mean there are temporal restrictions – strengthening the applicability to employment income.
3. Whether or not there is control and supervision In the case of an employment contract, an employee has to follow the working rules of the employer. In general, an employee works in accordance with the directives of his/her superior(s). On the other hand, in a subcontracting agreement, a business contractor will not receive any instructions from the client regarding progress and procedures, as long as the deadline is met. If job performance is specified by an employer, the applicability to employment income will be strengthened.
4. Whether or not there are remuneration rights In the case of a contract agreement, even if a business contractor has completed the work, if it is not delivered to the client by the deadline (for instance, due to an accident, disaster, or some other reason), the contractor will usually not receive the contracted remuneration. On the other hand, in the case of an employment contract, when an employee supplies manpower, remuneration could be required regardless of the results of the work. In this way, when a contracted payment is not affected by the results of the services rendered, with consideration being received for supplying labor over a period of time, applicability to employment income will be strengthened.
5. Whether materials, tools, etc. are supplied or not In the case of an employment contract, an employer supplies materials, tools, etc. On the other hand, in a contract agreement, a contractor will usually supply those him/herself. When a person possesses the material and tools and uses them, applicability to business income will be strengthened.