Caution Regarding Failure to Submit Tax Withholding Certificates for Part-Time Jobs

Introduction

Companies paying wages to part-time (‘gig’) workers must under certain circumstances submit an "Employment Income Tax Withholding Certificate" to the relevant tax office (director). Please confirm the requirements, and make sure that you don’t forget to submit them.

Side Work Qualifies as Daily Employment Contracts

”Side work” refers to part-time jobs utilizing one’s spare time, allowing workers to be employed on a daily or hourly basis through dedicated apps or other means.

The apps, etc., match gig workers with companies, then the workers and companies enter into employment contracts. The app operator merely introduces workplaces and talent to each party, so is not involved in the employment contracts themselves. Since these employment contracts are typically concluded as daily contracts, they terminate at the end of the day when the side work is performed. Even if side work spans multiple days or occurs repeatedly, a new employment contract is entered into and terminated each time.

No Certificate Submission Required for Annual Earnings under ¥500,000

The company paying wages must, in principle, prepare two copies of the "Employment Income Tax Withholding Certificate” - one for the individual, and one for submission to the tax office. However, for certain individuals, submission of the copy for the tax office is not required.

Among those exempt from submission are "individuals who did not submit a Dependent Allowance Declaration Form and are not subject to year-end tax adjustments (those subject to Column B or Column C), and whose total salary payments during the year are ¥500,000 or less."

Since side workers are typically employed under daily contracts, they fall under Category C. Therefore, if the total annual wages paid by a company to a part-time worker are ¥500,000 or less, the company is not required to submit a withholding tax certificate/statement to the competent tax office. (However, the company is still obligated to issue the statement to the part-time worker him/herself).

Note the Annual Income Cap on the App

Because of the rules exempting the submission of withholding tax statements to tax offices, app operators sometimes impose "annual income limits per company" on part-time workers. Specifically, to allow companies to utilize the exemption rule, the app would prevent matching part-time workers with the same company once the worker’s income from that company reached a certain threshold.

However, if a gig worker uses multiple apps, the total amount paid across all apps must be calculated for assessment. Even if the annual income limit on each individual app is met, submission of the statement by the company is required if the total payment amount received by the worker through two or more apps exceeds ¥500,000 in that year.

Payroll Reports Must Be Submitted

While the tax withholding certificate is submitted to the National Tax Agency (national government), there is also a rule regarding the "Employment Income Payment Report" submitted to local municipalities: submission to the municipality is not required if the "total employment income, etc., paid to an individual who ceased receiving employment income payments during the year is 300,000 yen or less for the year."

However, since many municipalities encourage submissions regardless of payment amounts, it is considered advisable to submit the "Employment Income Payment Report" even if payments to a part-time worker are under ¥300,000 in that year.

• Employment Income Tax Withholding Certificate (給与所得の源泉徴収票)… Not required if the total payment amount is ¥500,000 or less in a year
• Employment Income Payment Report (給与支払報告書)… Submission recommended, regardless of payment amount

Tax System Reform Requests Related to Cryptocurrency

Introduction

The Ministry of Finance and other government ministries have finalized their requests regarding the 2026 tax reforms. The Financial Services Agency is requesting a review of taxation related to cryptocurrency. Let's examine what this entails.

The Current Situation

Currently, profits earned from cryptocurrency are treated as miscellaneous income and are subject to comprehensive taxation, meaning they are calculated together with other income such as wages. Higher earners face higher tax rates, with the maximum rate potentially reaching 55%.

In contrast, profits from stocks and investment trusts are subject to a separate declaration system, where a fixed tax rate of approximately 20% is generally applied. This disparity places a significant burden on crypto asset investors, leading to growing calls for "the same rules as stocks.” 

Income tax 15%, resident tax 5%, special reconstruction income tax 0.315% = combined: 20.315%

The Financial Services Agency's Proposed Revisions

The Financial Services Agency aims to position cryptocurrency as a financial product, and align its tax treatment more closely with that of stocks and other securities. Key points include:

• Introduction of separate taxation: Considering the application of a flat tax rate of approximately 20% to crypto asset gains, similar to stocks
• Clarifying rules: Organizing crypto assets as investment products, and simplifying trading rules
• Improving the investment environment: Considering the future introduction of cryptocurrency exchange-traded funds (ETFs).

This aims to make it easier to build wealth using crypto assets.

Benefits and Considerations for Investors

If separate taxation is introduced, investors could see the following benefits:

• Potential lower tax rate: Even with significant profits, the tax rate might only reach 20%.
• Simplified tax filing: Separating crypto assets for calculation could streamline procedures.
• Possibility of loss carry-forwards: There may be opportunities to consolidate gains and losses with other investments, such as stocks.

On the other hand, to protect investors, exchanges are expected to face stricter reporting obligations to tax authorities. While rules may tighten, the market could become more transparent, potentially leading to new investment products, like ETFs.

Future Schedule

The content discussed above is merely a "request" from the Financial Services Agency, and it is unclear whether the request will be approved. Furthermore, even if the request is approved, it does not mean the matter will be decided immediately. The future process is expected to go as follows:

September 2025: Ministries and agencies submit tax reform proposals
December 2025: Government publishes "Outline of Tax Reforms"
January~March 2026: Bills deliberated in the Diet
April 2026 or later: New rules may start to be applied

If the Financial Services Agency's request is accepted, significant changes could occur starting with tax returns for 2026 and beyond. Therefore, it will be important to pay close attention to future news.

Summary

The Financial Services Agency is requesting that taxes on profits from crypto assets be treated under separate taxation, similar to stocks. If implemented, this might result in a flat tax rate of approximately 20%, and potentially simplify tax filing. While not yet officially decided, this could significantly alter the investment environment, so keep an eye on future developments.

Debate over Consumption Tax Reduction Reignites

Introduction

Consumption tax cuts were also a key theme in the previous House of Councilors election. Amid persistent high prices, there is continued strong public demand for tax cuts to help household finances, but concerns about worsening fiscal conditions are also being raised.

The Debate Over Consumption Tax Cuts, and Why It's Back in the Spotlight

Currently, Japan's standard consumption tax rate is 10%, with a lower rate of 8% applied to certain items like food. Amid ongoing price increases, both ruling and opposition parties are voicing opinions that, "The consumption tax should be temporarily lowered.” to ease the burden on consumers.

Former Prime Minister Ishiba also stated, "We should discuss both the advantages and disadvantages of tax cuts." While tax cuts would help households, they would also reduce national tax revenue, making it difficult to secure funding for social security and pensions. Consequently, opinions are divided among politicians and experts, and this is expected to be a major theme in future Diet deliberations.

Impact on Public Finances and National Debt

The consumption tax is a crucial source of funding for Japan's social security expenditures. It is indispensable for maintaining systems such as healthcare, pensions, and nursing care. Lowering the consumption tax would reduce this revenue, posing a risk of further worsening the fiscal deficit.

Japan's national debt (outstanding government bonds) has already reached over 1,200 trillion (i.e., 1.2 quadrillion) yen, an amount that stands out as exceptionally high among developed nations. Implementing tax cuts under these circumstances would likely require more borrowing to cover the shortfall, potentially leading to future tax hikes or cuts in social security spending.

Therefore, then-Prime Minister Ishiba expressed a cautious stance, stating, "We cannot afford tax cuts that require taking on new debt." Striking a balance between household support and fiscal consolidation remains a major challenge.

Rating Agencies Also Express Caution - Impact on International Standing

In response to this debate, the international rating agency Moody's also issued a warning. It stated that, "The scale and permanence of tax cuts could affect Japan's credit rating."

A downgrade could reduce confidence in Japanese government bonds, potentially causing interest rates to rise when the government raises funds. This would further increase the fiscal burden on the state, potentially adversely affecting future taxes and social security.

In other words, while a consumption tax cut offers benefits by helping household finances, it carries long-term risks for the nation’s finances and the Japanese economy as a whole, necessitating careful judgment.

If Tax Cuts Implemented, Impacts on People's Lives and Future Points of Controversy

If the consumption tax is lowered, it would initially have a positive effect on household finances. For example, reducing the standard rate from 10% to 9% would save approximately ¥30,000 per year on ¥3 million in consumption. Households with higher daily expenditures, such as on food and daily necessities, would feel the impact most strongly.

On the other hand, reduced tax revenue from the cuts could mean less money available for social security, education, and other programs. In the future, this might shift additional burdens onto citizens, potentially through increased out-of-pocket medical expenses, or pension system revisions. Furthermore, the following points will likely draw attention going forward:

• Temporary tax cuts or permanent tax cuts?
• How to secure funding for social security expenditures
• Balancing with other tax systems, such as income taxes and corporate taxes

We need to closely monitor the government's actions, while considering the potential impacts on people's lives.