Becoming Able to Calculate the Furusato Nozei Limit on Your Own

Disclaimer

This information is as of the time of writing.
The system changes quickly, so please research the latest information on your own.
Also, there may be mistakes, so if you notice any, please let me know.

Here, I ignore elements that make calculations complicated, such as housing loan deductions or dependent deductions.
If you understand the calculation method, it's easy to consider these, so those who are applicable should research on their own.

There are many complaints about taxes, but writing them here would have no impact, so I'll 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 specific local governments with a self-burden of 2,000 yen within the limit.
When donating, you receive return gifts worth about 20% of the donation amount, or you can earn points on the payment, resulting in an extremely high tax-saving effect.
As it applies to almost all citizens, it's a system where you're simply losing out if you don't participate.

In such a system, you need to calculate the upper limit before your income is finalized.
While there are guideline tables and simulation tools available, there are few tools that can accurately calculate including cases with income other than salary or high-income cases.
Also, without knowledge, it's difficult to determine if it's correct, and you may end up applying an incorrect limit.

Not only to get closer to the accurate value but also to consider other tax savings, it's important to understand the calculation method.
Therefore, here I'll look at the basic calculations of Furusato Nozei and try to calculate the Furusato Nozei upper limit as accurately as possible.

Basic Terms

I list the minimum terms you should understand.
Other terms will be supplemented as appropriate.

• Total income: The value of the money you received as is. It's the so-called face value.
• Deduction: Subtracting something from something. There are various types of deductions, but in the case of taxes, it's often used in a positive sense because it's nice when it decreases.
• Taxable income: The value that becomes the basis for tax calculation after receiving various deductions from income.
• Income tax amount: The value obtained by applying income tax to taxable income.
• Standard income tax amount: The value after some deductions (dividend deduction, housing loan deduction, etc.) from the income tax amount. This is paid to the country as national tax.
• Special income tax for reconstruction amount: The value obtained by multiplying the standard income tax amount by 2.1%. This is also paid to the country as national tax. It's sometimes referred to collectively as income tax for simplicity.
• Resident tax amount: The total resident tax. This is the sum of the income-based portion and the per capita portion within the resident tax. Even though it has "portion" in its name, it doesn't mean the tax becomes cheaper.
• Resident tax income-based portion amount: The result of applying resident tax (10%) to taxable income and making fine adjustments. This is paid to your area (prefecture) and local government.

If these get mixed up, it becomes difficult to understand the system.
In the internet world, various diagrams explain this, such as National Tax Agency - No.1000 Income Tax System, so if you don't understand, try looking for them.

System Overview

Furusato Nozei consists of three parts.
I'll confirm using Ministry of Internal Affairs and Communications page, Furusato Nozei System and Procedures, and Wako City (because it was written in detail) as sources.

(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 taxation, changing from about 5.105% to 45.945% (National Tax Agency - No.2260 Income Tax Rate).
For why these are such odd percentages, please refer to Income Tax Rate Used in Furusato Nozei Calculation.

The limit is 40% of total income.
You don't need to worry much about this constraint.

(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's difficult to cash out return gifts, so you don't need to worry much about this constraint.

(3) Deduction from Resident Tax (Special Portion)

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

It's shown as (Furusato Nozei amount - 2,000 yen) * (100% - 10% - Income tax rate), but in essence, within the range that fits this special portion, (Furusato Nozei amount - 2,000 yen) is all deducted.
Because the full amount (-2,000 yen) is deducted, and return gifts worth about 20% of the donation amount are received, it becomes a tax saving (or rather, a profit).

While this system has such a powerful advantage, there is a limit to the special portion.
The limit is 20% of the resident tax income-based portion amount (about 2% of taxable income).
Usually, this becomes the lowest limit, so the point where (3) is fully used becomes the upper limit of Furusato Nozei.
Conversely, any amount that overflows from this special portion usually doesn't result in tax savings.

Related Specifications

Furusato Nozei itself can calculate the upper limit relatively simply as described above.
So why do the stories mentioned in the background come up?
That's because it's difficult to calculate taxable income.

There are various types of income, each with special deductions or different tax rates.
Here, I'll cover some important points and then calculate using model cases later.

Employment Income Deduction

If you receive a salary from a company, a certain amount is deducted from your employment income.
It has been worsened from Reiwa to a range of 550,000 yen to 1.95 million yen.
There's a table on the main site, so please check it (National Tax Agency - No.1410 Employment Income Deduction).
Note that there's also a specific expense deduction that can be deducted for large amounts such as transfer expenses, but I won't consider it here.

Basic Deduction

It should be deducted for everyone... but it's a system that stops being deducted when the total income amount (described later) exceeds 25 million yen.
For deduction against income tax, refer to the main site (National Tax Agency - No.1199 Basic Deduction).
If income is 24 million yen or less, it's uniformly 480,000 yen.
Is this detailed slope necessary?

The resident tax has a similar system, and if income is 24 million yen or less, it's uniformly 430,000 yen.

Resident Tax Adjustment Deduction

It's a subtle difference, but as we saw with the basic deduction, there are items where the deduction amount differs between income tax and resident tax.
Details are shown by each local government (for example, Mitaka City), but in this case, an additional 2,500 yen is deducted.
This is for the basic deduction portion, so if there's no basic deduction, this doesn't exist either.

Income Tax Calculation

Among incomes, salaries and general miscellaneous income are subject to progressive income tax rates.
Not only is progressive taxation complicated, but there's also a special income tax for reconstruction, making the calculation troublesome.

For the progressive taxation portion, there's a table 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 Rate).
There's also a special income tax for reconstruction, and 2.1% is multiplied to the value calculated this way and added.
If you have a housing loan, it gets even more complicated, but I'll omit that 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.
Here, since we're not considering things like housing loans, the income tax amount = standard income tax amount.
Adding 2.1% of this value, 1,764,000 yen * 1.021 = 1,801,044 yen is the tax to be paid.
By the way, for an employment income earner to have a taxable income of 10 million yen, it varies depending on insurance premiums and various deductions, but the face value is about 14 million yen as a guide.

Income Tax Rate Used in Furusato Nozei Calculation

The Ministry of Internal Affairs and Communications' Furusato Nozei page states * For donations up to Reiwa 19, the income tax rate will be the rate including the special income tax for reconstruction rate., but it's unclear whether "the rate including the special income tax for reconstruction rate" is the correct expression.
In reality, it seems that tax rate determined according to taxable income * 1.021 is applied (Furunavi, Furusato Nozei System and Procedures, etc.).

Due to progressive taxation, it's not uniform, and since the special income tax for reconstruction multiplies 2.1% to the income tax amount, simply multiplying the tax rate by 1.021 shouldn't be the original income tax rate, but it seems to be a Furusato Nozei-like concept.

Calculation Considering Stocks, Futures, etc.

Taxation on stocks, futures, FX, etc., which are subject to separate taxation, has a fixed tax rate.
The rate is the familiar 20.315% (income tax and special income tax for reconstruction 15.315%, local tax 5%) (National Tax Agency - No.1331 Separate Taxation System for Dividends, etc. on Listed Stocks, etc.).

This is counted as a calculated amount, but it doesn't significantly affect the complexity of the calculation.
In other words, you can complete the calculation as before by adding transfer gain * 15.315% to the income tax amount and transfer gain * 5% to the resident tax income-based portion amount.
It's easy because there's no deduction at a fixed rate.

One-Stop Special System

The upper limit doesn't change.

If there are few cases, it's a system where you don't need to file a final tax return, but not filing a final tax return means the income tax you pay that year doesn't change.
So how do they keep the upper limit the same? They've adopted a genius system where the income tax portion is additionally deducted from the resident tax.
It's a beautiful system that increases convenience for citizens, suppresses the decrease in national tax revenue, and has local governments bear all the burden.
Local governments are also reacting, for example, words of gratitude have been raised from Nakano Ward.

Total Income Amount

It's used for calculations such as basic deduction.
As the name suggests, it's an amount that combines various incomes.
For employment income, etc., it uses values after employment income deduction, and for stocks, etc., it uses values after loss offset, so it becomes a relatively straightforward value.
Note that carry-forward deduction doesn't apply, so it's just this year's income regardless of the previous year.

Specific Examples

Finally, we've gathered most of the elements necessary for calculation.
From here, let's try calculating using specific examples.

Note that in all cases, we assume a single person with no deductions for dependents, housing loans, etc.

Case 1: Case of an Employment Income Earner

Let's consider a case where you receive a salary of 6 million yen and pay social insurance premiums of 900,000 yen.
There's no other income, and since year-end adjustment is complete, there's no need for a final tax return - a case that seems to be abundant in the world.

First, let's find the taxable income.
The employment income deduction is income amount × 20% + 440,000 yen, so it becomes 4.36 million yen (for total income less than 6.6 million yen, it's written to calculate with an incredibly hard-to-read table, but it's almost the same as this formula).
Social insurance premiums (900,000 yen) are tax-exempt and subtracted from the value after employment income deduction, so 4.36 million - 900,000 = 3.46 million yen is obtained.
Also, subtracting the basic deduction for income tax (480,000 yen), 3.46 million - 480,000 = 2.98 million yen is the taxable income for income tax, and for resident tax calculation (430,000 yen), it's 3.46 million - 430,000 = 3.03 million yen.

According to National Tax Agency - No.2260 Income Tax Rate, it's 20%, so 2.98 million * 0.2 - 427,500 = 168,500 yen becomes the income tax amount (also the standard income tax amount).
Adding 2.1% of the special income tax for reconstruction to this, 172,000 yen is the total amount of income tax.
Also, the resident tax income-based portion amount is 10% of the taxable income minus 2,500 yen, so 3.03 million * 0.1 - 2,500 = 300,500 yen.

The special portion of Furusato Nozei is resident tax income-based portion amount * 0.2, so we calculate to make it 300,500 * 0.2 = 60,100 yen.
It should be (Furusato Nozei amount - 2,000 yen) * (100% - 10% - 20 * 1.021%) = 60,100 yen, so after some effort in calculation, we get Furusato Nozei amount = 60,100 / 0.6958 + 2,000 = 88,400 yen.
This is the upper limit of Furusato Nozei possible with a self-burden of 2,000 yen.

Case 2: Case Including Income Other Than Employment

Let's consider a case where you receive a salary of 20 million yen and pay social insurance premiums of 3 million yen, have side income (miscellaneous income) of 15 million yen, and have stock transfer gains of 10 million yen.
Assume that expenses have already been deducted from the side income and transfer gains.

First, let's apply the deduction to the salary.
The employment income deduction is the upper limit of 1.95 million yen.
Also, subtracting social insurance premiums, the employment income becomes 20 million - 1.95 million - 3 million = 15.05 million yen.

The total income amount becomes 15.05 million + 15 million + 10 million = 40.05 million yen, and the basic deduction disappears because it exceeds 25 million yen.

Employment income and miscellaneous income are in the same tax category, so they are calculated together.
It's 30.05 million yen, so the tax rate is 40%.
30.05 million * 0.4 - 2.796 million = 9.224 million yen, and adding 2.1% of the special income tax for reconstruction, 9.224 million * 1.021 = 9.4177 million yen is the income tax for these.
Since there's no basic deduction, the resident tax income-based portion amount is also calculated from the same value, resulting in 30.05 million * 0.1 = 3.005 million yen.

Next, let's consider the stock transfer gains.
Add 10 million * 0.15315 = 1.5315 million yen to the income tax amount and 10 million * 0.05 = 500,000 yen to the resident tax income-based portion amount.
As a result, the income tax amount becomes 9.4177 million + 1.5315 million = 10.9492 million yen, and the resident tax income-based portion amount becomes 3.005 million + 500,000 = 3.505 million yen.
Note that the resident tax adjustment deduction is based on the basic deduction, so it's not deducted in this case.

The special portion of Furusato Nozei is resident tax income-based portion amount * 0.2, so we calculate to make it 3.505 million * 0.2 = 701,000 yen.
It should be (Furusato Nozei amount - 2,000 yen) * (100% - 10% - 40 * 1.021%) = 701,000 yen, so after some effort in calculation, we get Furusato Nozei amount = 701,000 / 0.4916 + 2,000 = 1,428,000 yen.
This is the upper limit of Furusato Nozei possible with a self-burden of 2,000 yen.

Tools

Assuming the knowledge up to this point is correct, it seems that Furusato Choice simulation is the most accurate.

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

Summary

Yuuka, help me

This is just knowledge researched on the internet, so there may be various mistakes.
I'm waiting for comments from tax accountants.