Severance Pay Take-Home Calculator (Retirement Income Deduction & Separate Taxation)
Enter your lump-sum severance amount, years of service, and whether you are an officer/director to automatically calculate the retirement income deduction, income tax (with reconstruction surtax), and resident tax, and see your actual take-home severance pay.
Retirement income deduction by years of service
The retirement income deduction increases in stages with years of service. Below are reference amounts for representative years of service.
| Years of service | Retirement income deduction |
|---|---|
| 5 years | 2,000,000 yen |
| 10 years | 4,000,000 yen |
| 15 years | 6,000,000 yen |
| 20 years | 8,000,000 yen |
| 25 years | 11,500,000 yen |
| 30 years | 15,000,000 yen |
| 35 years | 18,500,000 yen |
| 40 years | 22,000,000 yen |
Tips
- Years of service are rounded up to the next whole year. If you worked 20 years and 1 month, calculate the deduction using 21 years.
- If you retire as an officer/director (役員等) with 5 years of service or less, the 1/2 taxation reduction does not apply at all, resulting in a heavier tax burden than for regular employees.
- Even regular employees with 5 years of service or less lost the 1/2 taxation reduction on the portion of the amount after deduction exceeding 3,000,000 yen, starting from the 2022 tax reform.
- If you did not submit the "Report on Receiving Retirement Income" (退職所得の受給に関する申告書) to your employer, a flat 20.42% is withheld from your severance pay, and you will need to file a final tax return to get a refund.
- Resident tax on severance pay is withheld all at once when the payment is made, unlike ordinary resident tax which is deducted from salary over the following year.
Frequently Asked Questions
Side Note — Why severance pay gets preferential tax treatment
Severance pay is designed to carry a much lighter tax burden than ordinary salary income, reflecting its role as a reward for long years of service and a financial cushion for life after leaving a job. After a portion is made tax-free through the retirement income deduction, only half of the remainder is generally subject to tax — this "1/2 taxation" rule is why retirement income is taxed far more gently than salary under Japan's progressive tax brackets.
However, this 1/2 taxation rule was significantly revised starting in the 2022 tax year. Previously, as long as the deduction requirement was met, the full benefit of 1/2 taxation applied regardless of how short the years of service were — leading to criticism that some executives were repeatedly receiving severance pay after short tenures purely for tax-saving purposes. In response, regular employees with 5 years of service or less now lose the 1/2 taxation benefit on any portion of the amount after deduction exceeding 3,000,000 yen.
Officers and directors (yakuin-tou, 役員等 — those in positions close to management) have actually been subject to an even stricter rule since 2013, well before the 2022 reform: the "specified officer severance pay" (特定役員退職手当等) rule, under which the 1/2 taxation reduction does not apply at all if years of service are 5 or less. Because officers have more control over the timing of their own retirement than regular employees, they face a tougher standard.