Become able to calculate the limit of Furusato Nozei by yourself

Notes

This information is current as of the time of writing.

The system changes quickly, so please check the latest information yourself.

Also, there may be mistakes, so please let me know if you notice any.

Here, we ignore elements that make calculations difficult, such as home loan deductions and dependent deductions.

If you understand the calculation method, it is easy to consider, so please check it yourself if applicable.

There are endless complaints about taxes, but writing them on this page will have no impact, so I will omit them.

Let's complain when we have enough power to freely change the tax system!

Background

Furusato Nozei is a system where you can donate to a specific municipality with a self-burden of 2,000 yen within the limit.

When making a donation, you can receive a return gift worth about 20% of the donation amount or earn points for payment, resulting in extremely high tax-saving effects.

Almost all citizens are eligible, so it is a system where you are simply losing out if you do not use it.

However, you need to calculate the limit amount before your income is finalized.

Although there are guideline tables and simulator tools, there are few tools that can accurately calculate in cases where there is income other than salary or for high-income earners.

Also, without knowledge, it is difficult to determine if it is correct, and you may apply an incorrect limit.

I believe it is important to understand the calculation method not only to get closer to the correct value but also to consider other tax savings.

Therefore, here we will look at the basic calculations of Furusato Nozei and try to calculate the most accurate Furusato Nozei limit possible.

Basic Terms

Here are the minimum terms you should know.

Other terms will be supplemented as needed.

• Total Income: The total amount of money earned. Also known as the gross amount.

• Deduction: Subtracting something from something. There are various types of deductions, but in the case of taxes, it is often used in a positive sense because it reduces the amount.

• Taxable Income: The amount used as the basis for tax calculation after various deductions from income.

• Income Tax Amount: The amount obtained by applying income tax to taxable income.

• Standard Income Tax Amount: The amount after some deductions (such as dividend deductions and home loan deductions) from the income tax amount. This is paid to the national government as national tax.

• Special Reconstruction Income Tax Amount: The amount obtained by multiplying the standard income tax amount by 2.1%. This is also paid to the national government as national tax. It is sometimes collectively referred to as income tax for simplicity.

• Resident Tax Amount: The total resident tax. This is the sum of the income portion and the fixed portion of the resident tax. Even though it is called "portion," it does not mean the tax is cheaper.

• Resident Tax Income Portion: The amount obtained by applying resident tax (10%) to taxable income and making fine adjustments. This is paid to the area (prefecture) and the municipality where you live.

If these are mixed up, it becomes difficult to understand the mechanism.

There are various diagrams explaining this on the internet, such as National Tax Agency - No.1000 Mechanism of Income Tax, so if you don't get it, try searching for them.

System Overview

Furusato Nozei consists of three parts.

We will confirm the sources such as Ministry of Internal Affairs and Communications page, Mechanism and Procedure of Furusato Nozei, and Wako City (detailed).

(1) Deduction from Income Tax

(Furusato Nozei Amount - 2,000 yen) * Income Tax Rate is deducted from the income tax amount.

The income tax rate is progressive and ranges from approximately 5.105% to 45.945% (National Tax Agency - No.2260 Income Tax Rates).

For why the rate is so awkward, refer to Income Tax Rate Used for Furusato Nozei Calculation.

The limit is 40% of total income.

You don't need to worry much about this restriction.

(2) Deduction from Resident Tax (Basic Portion)

(Furusato Nozei Amount - 2,000 yen) * Resident Tax Rate (10%) is deducted from the resident tax amount.

The limit is 30% of total income.

As mentioned later, it is difficult to cash in the return gifts, so you don't need to worry much about this restriction.

(3) Deduction from Resident Tax (Special Portion)

This is the factor that makes Furusato Nozei a tax-saving scheme.

It is shown as (Furusato Nozei Amount - 2,000 yen) * (100% - 10% - Income Tax Rate), but in short, within this special portion, the entire amount of (Furusato Nozei Amount - 2,000 yen) is deducted.

All of it (-2,000 yen) is deducted, and you receive return gifts worth about 20% of the donation amount, making it a tax saving (or rather a profit).

This system has such a great advantage, but there is a limit to the special portion.

The limit is 20% of the resident tax income portion (approximately 2% of taxable income).

Usually, this is the lowest limit, so the upper limit of Furusato Nozei is the point where you fully use the special portion.

Conversely, the portion that exceeds this special portion does not usually result in tax savings.

Related Specifications

Furusato Nozei itself can be calculated relatively simply as described above.

So why do the issues mentioned in the background arise?

It is because calculating taxable income is difficult.

There are various types of income, each with special deductions and different tax rates.

Here, we will cover some important points and then calculate with model cases.

Employment Income Deduction

If you receive a salary from a company, a certain amount is deducted from the employment income.

From Reiwa, it has been worsened to a range of 550,000 yen to 1,950,000 yen.

There is a table on the main site, so please check it (National Tax Agency - No.1410 Employment Income Deduction).

There is also a specific expense deduction for large amounts such as transfer expenses, but we will not consider it here.

Basic Deduction

It should be deducted for everyone... but the system has been changed so that if the total income amount (described later) exceeds 25 million yen, it is no longer deducted.

For deductions against income tax, refer to the main site (National Tax Agency - No.1199 Basic Deduction).

If the income is 24 million yen or less, it is uniformly 480,000 yen.

Is this fine gradient necessary?

The resident tax system is the same, and if the income is 24 million yen or less, it is uniformly 430,000 yen.

Adjustment Deduction for Resident Tax

As seen in the basic deduction, there are different deduction amounts for income tax and resident tax.

Details are shown by each municipality (Reference: Mitaka City), but in this case, an additional 2,500 yen is deducted.

This is based on the basic deduction, so if there is no basic deduction, this also does not apply.

Income Tax Calculation

For income such as salary and general miscellaneous income, progressive income tax rates apply.

In addition to progressive tax rates, there is a special reconstruction income tax, making calculations complicated.

The progressive tax rates are shown on the main site, and you can calculate by multiplying the taxable income by the rate and subtracting the deduction amount (National Tax Agency - No.2260 Income Tax Rates).

There is also a special reconstruction income tax, and 2.1% of the calculated amount is added.

If there is a home loan, it becomes even more complicated, but we will omit it here.

For example, if the taxable income is 10 million yen, the income tax amount is 10 million yen * 0.33 - 1,536,000 yen = 1,764,000 yen.

Since we do not consider home loans here, the income tax amount = standard income tax amount.

Adding 2.1% to this amount, 1,764,000 yen * 1.021 = 1,801,044 yen is the tax to be paid.

For a salary income earner to have a taxable income of 10 million yen, considering differences in insurance premiums and various deductions, the gross amount is around 14 million yen.

Income Tax Rate Used for Furusato Nozei Calculation

The Ministry of Internal Affairs and Communications' Furusato Nozei page states that ※ Until the end of Reiwa 19, the income tax rate used for Furusato Nozei calculation includes the rate of the special reconstruction income tax. (Ministry of Internal Affairs and Communications - Mechanism of Furusato Nozei).

In practice, it seems that the rate determined according to the taxable income is applied as income tax rate * 1.021 (Furunavi, Mechanism and Procedure of Furusato Nozei).

Due to progressive taxation, it is not uniform, and since the special reconstruction income tax is 2.1% of the income tax amount, simply multiplying the tax rate by 1.021 does not represent the original income tax rate, but it seems to be a concept for Furusato Nozei.

Calculations Considering Stocks, Futures, etc.

For stocks, futures, and FX, which are subject to separate self-assessment taxation, a fixed rate is applied.

The rate is the familiar 20.315% (income tax and special reconstruction income tax 15.315%, local tax 5%) (National Tax Agency - No.1331 Separate Self-Assessment Taxation for Dividends of Listed Stocks).

This is included in the calculated amount but does not significantly affect the complexity of the calculation.

In other words, you can complete the calculation by adding capital gains * 15.315% to the income tax amount and capital gains * 5% to the resident tax income portion, and then performing the same calculation as before.

It is straightforward because it is a fixed rate with no deductions.

One-Stop Special Provision

The limit does not change.

It is a system where you do not need to file a tax return if the number of donation destinations is small, but if you do not file a tax return, the income tax for that year does not change.

So how do you keep the limit the same? By adopting a genius system where the income tax portion is additionally deducted from the resident tax.

It is a beautiful system that increases the convenience of citizens, reduces the national tax revenue decrease, and places the burden entirely on local governments.

Local governments are also responding, and for example, Nakano Ward has expressed gratitude.

Total Income Amount

It is used for calculating basic deductions, etc.

As the name suggests, it is the total amount of various incomes.

For salary income, the amount after employment income deduction, and for stocks, the amount after offsetting gains and losses is used, making it a relatively straightforward amount.

Note that carryover deductions do not apply, so the previous year is irrelevant, and it is the income of this year as it is.

Specific Examples

Finally, we have gathered the necessary elements for calculation.

From here, let's calculate using specific examples.

In all cases, it is assumed that the individual is single and there are no deductions for dependents or home loans.

Case 1: Salary Income Earner

Consider a case where you receive a salary of 6 million yen and pay 900,000 yen in social insurance premiums.

There is no other income, and since year-end adjustments have been made, no tax return is required, which is a common case.

First, we calculate the taxable income.

The employment income deduction is 20% of the income amount + 440,000 yen, so it is 4.36 million yen (If the total income is less than 6.6 million yen, calculate with a terribly hard-to-read table, but this formula is almost the same).

Since social insurance premiums (900,000 yen) are non-taxable and deducted from the amount after employment income deduction, 4.36 - 0.9 = 3.46 million yen is obtained.

Also, subtract the basic deduction for income tax (480,000 yen), and 3.46 - 0.48 = 2.98 million yen is the taxable income for income tax, and for resident tax calculation (430,000 yen), 3.46 - 0.43 = 3.03 million yen.

According to National Tax Agency - No.2260 Income Tax Rates, the rate is 20%, so 2.98 * 0.2 - 427,500 yen = 168,500 yen is the income tax amount (also the standard income tax amount).

Adding the special reconstruction income tax of 2.1%, 172,000 yen is the total income tax.

The resident tax income portion is calculated from the taxable income at 10%, subtracting 2,500 yen, 3.03 * 0.1 - 0.25 = 300,500 yen.

The special portion of Furusato Nozei is resident tax income portion * 0.2, so 30.05 * 0.2 = 6.01 million yen.

To achieve (Furusato Nozei Amount - 2,000 yen) * (100% - 10% - 20 * 1.021%) = 6.01 million yen, calculate hard and find that Furusato Nozei Amount = 6.01 / 0.6958 + 0.2 = 8.84 million yen.

This is the upper limit of Furusato Nozei with a self-burden of 2,000 yen.

Case 2: Including Non-Salary Income

Consider a case where you receive a salary of 20,000,000 yen, pay 3,000,000 yen in social insurance premiums, and have additional income from side jobs (miscellaneous income) of 15,000,000 yen and capital gains from stocks of 10,000,000 yen.

Assume that expenses have already been deducted from the side job and capital gains.

First, we will apply deductions to the salary.

The salary income deduction will be the maximum of 1,950,000 yen.

Additionally, after deducting social insurance premiums, the salary income will be 20,000,000 - 1,950,000 - 3,000,000 = 15,050,000 yen.

The total income amount will be 15,050,000 + 15,000,000 + 10,000,000 = 40,050,000 yen, and the basic deduction will be eliminated as it exceeds 25,000,000 yen.

Since salary income and miscellaneous income fall under the same tax category, they are calculated together.

Since it is 30,050,000 yen, the tax rate is 40%.

30,050,000 * 0.4 - 2,796,000 = 9,224,000 yen, plus the special reconstruction income tax of 2.1%, 9,224,000 * 1.021 = 9,417,700 yen is the income tax for these.

Since there is no basic deduction, the resident tax income levy amount is also calculated from the same value, resulting in 30,050,000 * 0.1 = 3,005,000 yen.

Next, consider the capital gains from stocks.

Add 10,000,000 * 0.15315 = 1,531,500 yen to the income tax amount and 10,000,000 * 0.05 = 500,000 yen to the resident tax income levy amount.

As a result, the income tax amount becomes 9,417,700 + 1,531,500 = 10,949,200 yen, and the resident tax income levy amount becomes 3,005,000 + 500,000 = 3,505,000 yen.

Note that the resident tax adjustment deduction is based on the basic deduction, so it is not deducted in this case.

The special deduction for hometown tax donation is calculated as resident tax income levy amount * 0.2, so 3,505,000 * 0.2 = 701,000 yen.

If (hometown tax donation amount - 2,000 yen) * (100% - 10% - 40*1.021%) = 701,000 yen, then by calculation, the hometown tax donation amount is 701,000 / 0.4916 + 0.2 = 1,428,000 yen.

This is the maximum amount of hometown tax donation possible with a self-burden of 2,000 yen.

Tools

If the above knowledge is correct, the simulation on Furusato Choice seems to be the most accurate.

(Addendum) Kaikei Seven's web tool is very detailed. It seems good to use this.

Summary

Yuuka, help me.

Since this is just knowledge researched on the internet, there may be various mistakes.

Comments from tax accountants are welcome.