The calculation for Furusato Nozei deduction's upper limit and simple simulation

Furusato Nozei donation is legally treated as "donation". Donations are tax deductible when you file a final tax return. Furusato Nozei (excluding the amount of 2,000 yen co-payment) can also be deducted from income tax and resident tax from the amount donated within the maximum deduction amount (determined by annual income, family composition, etc.).

For example, if you apply for Furusato Nozei of 10,000 yen once to one Municipality, the deduction will be 8,000 yen(10,000 yen- 2,000 yen). In addition, even if you apply for Furusato Nozei of 10,000 yen each to five Municipalities and donate 50,000 yen in total, your co-payment will be 2,000 yen, and the remaining 48,000 yen will be deductible.

However, the tax deducted will not be refunded in full to your account. It changes depending on the application method for the deduction (final tax return or one-stop special application). In the final tax return, income tax and resident tax are refunded and deducted separately, but in the "One-stop Special System," there is no refund from income tax, a deduction only from resident tax. The total amount after subtracting the co-payment amount from the maximum deduction amount will be deducted from the resident tax.
For example, if you paid 10,000 yen for Furusato Nozei, the refund and deduction will be as follows.

*If you have income other than salary, the income tax may be deducted as a reduction of the tax amount instead of a refund.

Generally, income tax is already deducted when you receive your salary. Therefore, the income tax deduction will be refunded (transferred) to your account later. On the other hand, resident tax is paid in the following year based on the income from January 1st to December 31st. Since the donation will be deducted from the resident tax of the following year of donation, the amount of the deduction will reduce the amount of resident tax that would otherwise have been paid.

Column 1 Confirming the amount actually deducted

Deductions for income tax will be credited to your account as a refund, so you can check it in your account. Since the resident tax will be deducted from the resident tax to be paid in the following year of donation, it can be confirmed in the “resident tax decision notification”.

The "resident tax decision notification" is distributed by your workplace or Municipality around June every year. You can confirm the deduction in the notification you receive around June of the following year of donation. The tax amount column includes municipal inhabitant tax and prefectural inhabitant tax, and the amount deducted from resident tax is included in the total of the two items called "tax credit amount."

To explain in detail, the “tax credit amount” is the sum of deductions for Furusato Nozei and others. Among them, adjusted deduction will be subject to all the people. At least 2,500 yen combining municipal and prefectural tax will be deducted through the adjusted deduction.

Therefore, Furusato Nozei deduction amount can be roughly calculated using the following formula.

Deduction amount from resident tax in Furusato Nozei payment= Total amount of tax deduction - 2,500 yen

However, not only adjustment deductions but also housing loan deductions and dividend deductions are included, so if you want to check the exact amount, please contact your local Municipality.

Source: Ministry of Internal Affairs and Communications website "Forms for main declaration procedures in the field of local taxes [by tax item]"
Notification of determination/change of special collection tax amount pertaining to employment income, etc. (for taxpayers)

The donated amount, minus the 2,000 yen of co-payment, can be refunded or deducted from income tax or resident tax. However, please note that this does not mean that you will be deducted in any amount.
For example, if you donate 100,000 yen , you may be able to deduct 98,000 yen subtracting 2,000 yen, but you cannot deduct the amount exceeding the maximum deduction amount. The amount deducted will vary depending on the donor's annual income and family composition.

It is important to check the upper limit of the deduction, "How much can I afford to pay for Furusato Nozei?" So, here are three ways to find out what the appropriate deduction limit is.

Here, let's calculate the amount with a specific example according to the calculation formula introduced in Point 1 and Point 2.

You need to be especially careful if you are receiving deduction of housing loan medical expenses.
The deduction amount simulation, guideline list, and calculation formula introduced in Point 2 are patterns that do not include deductions such as housing loan deductions and medical expense deductions. If you apply to any of the following three conditions, please note that the maximum amount that can be deducted for Furusato Nozei may change.

For those who receive tax deductions other than Furusato Nozei, such as housing loan deductions and medical expenses deductions

Income tax and resident tax are determined by your income for the year. The maximum amount that can be deducted on final tax return is the amount of tax determined based on your income. In other words, by deducting housing loan and medical expenses, the amount that can be deducted for Furusato Nozei may decrease. In particular, please note that the amount of the housing loan deduction is large, so you may reach the maximum amount that can be deducted from the housing loan deduction alone. In addition, by entering the information in the "If you are using the housing loan tax reduction system" section under Point 2's deduction amount simulator, you can check whether the amount of deduction from the housing loan tax reduction will change if you apply for Furusato Nozei. Please use this as a reference.

If you did not reach your expected income

You cannot see your annual income until your income from January 1st to December 31st is confirmed. If you are a company employee, you can predict to some extent based on your previous year's income and monthly salary. But some self-employed people and freelancers can not estimate their annual income because their income varies from month to month. There also may be possibilities of decreasing income due to retirement, injuries, or diseases, etc. When the income decreases, the amount of tax and the maximum amount you can deduct will also decrease. You may be unable to deduct the full amount of your donation because your income is less than the income estimated at the beginning of the year.

For those whose family structure changes

Be careful if your family structure changes, such as having a new child or living with your parents and increasing the number of dependents.

That's all for "Calculation formula and simple simulation for the upper limit of Furusato Nozei deduction."
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