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Year-end adjustment: the payroll team's work from autumn to January

Year-end adjustment settles the difference between the income tax withheld during the year and the tax actually due. The payroll team's tasks in order, from the autumn notice to the withholding slips, and why the rules must be rechecked every year.

Checked 2026.10.24Status: In force2 min read

What you will learn
  • Why year-end adjustment is needed
  • How the annual tax is calculated
  • The payroll flow from autumn to January
  • Why last year's setup cannot be reused

The short answer

Year-end adjustment settles the difference between the income tax withheld each month and the tax actually due for the year. It starts in autumn, not just before December's payroll, and the rules, forms and system settings must be rechecked every year rather than copied from last year.

Why it is needed

Monthly withholding estimates the year from one month's pay. Life and earthquake insurance premiums paid are not reflected, and a change in dependants counts only from the pay after the employee files an amended declaration. Per the NTA, the year's tax is calculated from the total salary fixed for 1 January to 31 December: subtract the employment income deduction, subtract personal deductions, apply the tax rate, subtract credits such as the housing-loan credit, and add the special reconstruction income tax. The result is compared with what was withheld, and the difference refunded or collected.

The flow, autumn to January

  1. Notify staff (around October–November) of what to submit and by when
  2. Collect declarations: dependants, basic and spouse deductions, insurance premiums
  3. Check dependants — age, expected income, living arrangements
  4. Check premium certificates
  5. Fix the year's salary and tax withheld
  6. Calculate and settle in December's or January's pay
  7. Issue withholding slips to staff
  8. Submit salary payment reports to municipalities and statutory records to the tax office by the end of January

If steps 2–4 stall, everything after them stalls, so notify early and set the deadline well before December's payroll.

Don't copy last year's setup

The content changes almost every year. The 2025 reform changed the basic deduction, the employment income deduction floor and added a special deduction for young relatives, applied from the December 2025 adjustment; monthly withholding switched to new tables in January 2026. The FY2026 reform then raises the basic deduction and the employment income deduction floor and revises the income limits for dependants. Per the NTA, it takes effect in principle on 1 December 2026 and applies to income tax from 2026 onward: withholding through November 2026 is unchanged, and the change starts with the year-end adjustment done in December 2026. Check the NTA guidance for the amounts. The NTA also notes that from the 2027 tax year, a special defence income tax is withheld alongside income tax and the reconstruction surtax. The combined rate (2.1%) stays the same, so the way withholding is calculated does not change. Forms change too. Read the NTA's annual guide before starting.

Summary

Start in autumn, collect and check the declarations, settle in December or January, and file by the end of January — using this year's rules, not last year's.

Read nextBack officeWhat changes in Japan's 2026 year-end adjustment: basic deduction, employment income deduction and dependant limitsFrom the December 2026 year-end adjustment, Japan raises the basic deduction and the minimum employment income deduction, and changes the income limits for dependants. Based on the National Tax Agency's 2026 guide, this summarizes the new figures and what payroll staff should check before December.
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