Sorting out the Main Points concerning Adjustment Benefits for the Flat-rate Tax Credit
Introduction
There are cases where a person's tax payment is less than the amount of tax reduction due to the flat-rate tax reduction. In such cases, the municipality they reside in will provide an adjustment benefit.
What are Adjustment Benefits?
Adjustment benefits will be provided to those whose fixed amount of tax reduction available, calculated based on the taxpayer himself/herself and their spouse and dependents, exceeds the taxpayer's income tax amount for the year 2024 or the individual inhabitant tax rate of income for the year 2024.
The municipality will provide the amount calculated based on the total such excess amount.
When Adjustment Benefits are Provided
When the 2024 income tax amount or the
individual inhabitant tax for FY2024 ＜ flat-rate tax reduction available
If the taxpayer's total income exceeds 18.05 million yen, the taxpayer is not eligible for the flat-rate tax reduction, and will not receive the adjustment benefit. The number of taxpayers who will actually receive the adjustment benefit is expected to be approximately 23 million.
When do Benefits Begin?
The standard administrative processing date for municipalities to proceed with processing, such as the calculation of the amount of adjusted benefits, is estimated to be June 3, 2024. Therefore, the payment period is basically scheduled to begin in the summer of 2024 or later. This would be the initial benefit to be paid based on the income status of 2023 - roughly the amount of the flat-rate tax reduction that is not expected to be fully deducted.
Thereafter, there would be an additional shortfall benefit that would be provided in cases where the initial benefit described above is found (when the actual income tax and flat-rate tax reduction for 2024 are finalized) to be insufficient to cover the amount of the tax reduction. The benefit amount which is in shortfall is expected to be implemented (provided) from 2025. The flat-rate tax reduction procedure itself will be carried out twice: once for the monthly tax reduction to be done for a salary paid monthly, and once for the annual tax reduction to be settled via the year-end adjustment, while the adjustment benefit will also be carried out twice: once for the initial benefit, and once for the benefit amount deficiency.
Possible Flat-rate Tax Reductions and Benefit Amounts
The amount of the adjusted benefit depends on the individual's circumstances. Basically, the benefit is equal to the amount of the flat-rate tax reduction available minus the actual tax reduction.
The amount of the flat-rate tax reduction available is determined based on the number of individuals: the taxpayer himself/herself, their spouse in the same household, and their dependents. For example, the maximum amount is 40,000 yen for a single taxpayer, and 160,000 yen for a taxpayer supporting a spouse and two children.
In a case where 160,000 yen is the upper limit, the taxpayer's income tax amount is 30,000 yen and the inhabitant income tax rate is 20,000 yen (both before the flat-rate tax reduction), an adjustment benefit of 110,000 yen would be provided.
What Procedures are Necessary to Receive Benefits?
Those who are expected to be eligible will receive documents from their local municipalities from this summer. Documents have already been sent from (some?) municipalities, but it is expected that there will be a certain amount of variation in this, depending on the municipality.
The taxpayer will need to return the documents received from the municipality and there is a deadline for application. Please note that if you miss this deadline, you may not be able to receive benefits.
However, there are some cases where the return procedure is not required if an employee has registered an account to receive public money, so please check with your local government. Please note that these procedures should be carried out individually by the employee, and do not require any procedures be carried out by the company.
Invoice System Support Regarding Flea Market Apps, etc.
Introduction
The National Tax Agency has added one more "Frequently Asked Questions” (FAQ’s) section for the invoice system. Some people have asked whether the transitional measures would apply to purchases made through flea market apps, etc., because the seller’s name and address cannot be entered on the books of account due to the seller being anonymous. Answers to such questions have been added.
For Used Goods Shops
The updated FAQ’s section shows the applicability of the tax credit for purchases related to flea market applications, etc. If an antique dealer or used goods shop operating their business with a license under the Secondhand Articles Dealer Act purchases antique/used articles as merchandise via a flea market application, etc., the tax credit for purchases can be applied by receiving and keeping a simplified invoice if the supplier is an invoice-issuing business.
If the supplier is other than an invoice-issuing business, the tax credit for purchases can be applied only by keeping a ledger containing certain information (the special exception for antique dealers, etc.). If the total value of the consideration is 10,000 yen or more, the antique dealer is required under the Secondhand Articles Dealer Act to enter the name and address of the supplier in the antiques ledger. In applying the antique dealer exception, information such as the name and address of the supplier must be entered in the account book according to the Consumption Tax Law, so the supplier’s pertinent information needs to be confirmed.
On the other hand, if the total amount of consideration is less than 10,000 yen, in principle, it is not necessary to enter the name and address of the supplier in the ledger of secondhand articles? antiques account book. Under the antique dealer exception, if the name and address of the supplier are not required to be entered in the antique ledger, they are also not required to be entered in the books under the Consumption Tax Law, so the antique dealer exception can be applied even if the supplier/seller is trading anonymously.
For Non-Antique Dealers/Used Goods Shops
In a case where a business operator other than a used goods shop purchases office supplies, etc. for business use from a person/company other than an invoice-issuing business operator via a flea market application, etc., then based on certain requirements, a transitional measure that allows a deduction of 80% or 50% of the amount equivalent to purchase tax can be applied. Since it is assumed that the purchaser is not an antique dealer, the special exception for antique dealers, etc. does not apply.
In order to qualify for the transitional measures, "the name or title of the person who prepared the document" must be stated on a separated categorized invoice, etc., and "the name or title of the counterparty of the taxable purchase" must be stated in the books of account. As for these entries, it is indicated that "the name of the flea market app and the name of the account in the flea market app" is allowed to be stated.
Electronic storage of transaction screens of flea market apps, etc. a categorized invoices, etc. is also permitted, but it should be noted that in this case, the screenshots must be saved in accordance with the requirements of the Electronic Books Maintenance Act.
| Purchases by antique dealers | Purchases by businesses other than antique dealers | ||
|---|---|---|---|
| 10,000 yen or more | Less than 10,000 yen | ||
| Seller's Identification possible | Special provision for antique dealers, etc. applicable | Special exception provision for antique dealers, etc. applicable | 80% and 50%. transitional measures |
| Seller's identity cannot be confirmed | Special exception provision for antique dealers, etc. not applicable | Special exception provision for antique dealers, etc. applicable | 80% and 50%. transitional measures |
The antique dealer exception applies only to purchases of inventory, so even antique dealers are not included in the above table if their purchase(s) are not for inventory.
Taxation of Subsidized Meals
Introduction
In light of rapidly-rising prices, an increasing number of companies are apparently subsidizing company lunches during the workday as part of their benefits packages. In such cases, what are the tax implications? If a company goes to the trouble of subsidizing lunches as part of its benefits program, but then has to pay payroll taxes on the subsidized lunches, some of the benefit would be lost. If meals are subsidized, it is desirable to handle them in a way that does not incur payroll taxation.
Provision of Meals is a Granting of Economic Benefit
Under the Income Tax Law, in addition to the payment of salaries and bonuses, the provision of economic benefits by a company to its employees is, in principle, taxable as salary. Examples include interest-free or low-interest loans and free or fixed-amount transfers of goods.
However, certain grants are exempt from taxation as if there is no economic benefit. One such benefit is the provision of subsidized meals.
When a company provides meals to its employees, etc., it is exempt from taxation if the following requirements are met:
- Employees, etc. must pay more than half of the cost of meals.
- The amount of the company's subsidy must be less than or equal to 3,500 yen per employee before tax.
Standard Amounts for Meal Costs
The standard amounts for meal expenses differ depending on whether the employee purchases a boxed lunch or receives a meal prepared by the company at the company’s cafeteria or another location.
When the company purchases and supplies lunch boxes, etc.:
Base amount = purchase price paid to vendor
In cases where meals prepared by the company are provided, such as in the company cafeteria:
Base amount = cost of food ingredients + cost of seasonings + total other costs directly incurred to prepare the meal
The total cost of food ingredients, seasonings, and other direct costs incurred to prepare the meal is the standard for each of the above, and the important point is that employees, etc. are paying for half or more of that total.
This treatment applies only to cases where actual meals are provided, such as when meals are prepared as boxed lunches.
For example, if an employee pays for a meal at a restaurant and then the company reimburses the employee for all or part of the actual cost of the meal based on a receipt, the entire amount of the subsidy (reimbursement) is taxable as salary, even if the requirements in 1. and 2. above are met, because the company is reimbursing the employee for over half of the meal in cash.
However, if the company pays the cost of meals to a specific restaurant under a contract with the restaurant, instead of directly reimbursing the employee for some or all of the actual cost, it is considered to be a payment for actual meals, and is exempt from taxation if the above requirements 1. and 2. are met.
It’s clear that it’s very important whether or not the company is paying money directly to the employee.
What about Evening Meals for Overtime, Instead of Lunch?
In addition, instead of lunches, when actual meals are provided to employees who work overtime or night-duty, etc., the employee is exempt from tax even if he or she does not have to pay for the meal because it is a reimbursement of their actual expenses incurred for work outside regular working hours, etc.
However, even in such a case, the full cost must in principle be borne by the employee. Please note that if a meal allowance is added to the salary, or if cash is directly handed to the employee for the meal, it becomes subject to payroll taxation.
