When Side Job Income Exceeds ¥200,000: Tax Filing Requirements and How to Calculate Your Tax

What is the ¥200,000 Rule?

The "¥200,000 rule" means that salary earners (company employees, civil servants, etc.) who earn more than ¥200,000 annually from side jobs are obligated to file a tax return. Specifically, this is a provision based on Article 121 of the Income Tax Act, established as a special measure for salary earners who receive year-end adjustments.

This ¥200,000 threshold refers to the total amount of income other than salary. If you have multiple side jobs, you must combine all their incomes to make this determination. For example, if you earn ¥150,000 from side job A and ¥100,000 from side job B, the total is ¥250,000, requiring a tax return.

However, there are several important caveats to this ¥200,000 rule. First, this threshold applies to income tax, not residential tax. Even if your side job income is below ¥200,000, you must still file a residential tax return separately.

Additionally, this exemption only applies to salary earners who received year-end adjustments and do not file tax returns for other reasons like medical expense deductions or hometown tax donations. If you file a tax return for any reason, you must include side job income below ¥200,000 as well.

Furthermore, this ¥200,000 amount refers to "income" not "revenue." Income is revenue minus necessary expenses. This distinction is explained in detail in the next section.

How Side Job "Income" is Calculated

Income calculation for side jobs is expressed by the formula "Revenue − Necessary Expenses = Income." Accurately understanding this difference between "revenue" and "income" is the first step to proper tax filing.

Revenue refers to the total amount earned from side jobs. For example, if you received ¥500,000 in compensation as a freelance web designer annually, this ¥500,000 is revenue. If you completed multiple projects on crowdsourcing sites, the total of all compensation is revenue.

Income, on the other hand, is revenue minus necessary expenses. Costs for purchasing computers, software, books, etc. for web design work are recognized as necessary expenses. If revenue is ¥500,000 and necessary expenses are ¥150,000, income is ¥350,000.

Income categories differ depending on the type of side job. Main categories are as follows:

Business Income

Income from side jobs conducted continuously and repeatedly. This includes freelance web design, writing, consulting, and handmade product sales. To be recognized as business income, business nature (profitability, continuity, repeatability) is required.

Miscellaneous Income

Income from temporary or sporadic side jobs, or side jobs not recognized as business income. This includes affiliate income, point site earnings, and flea market app sales (when not for profit). Recent tax reforms stipulate that side job revenue under ¥3 million is generally classified as miscellaneous income.

Salary Income

Income earned through employment contracts such as part-time or temporary work. In this case, salary income deduction is automatically applied, so individual expenses cannot be claimed.

Since expense claiming methods and blue return eligibility differ by category, accurately understanding which category your side job falls under is crucial.

Tax Rate Structure

Taxes on side job income consist primarily of income tax and residential tax. Let's understand each tax rate and taxation method.

Income Tax

Income tax uses a progressive taxation system, where higher income results in higher tax rates. Current income tax rates as of 2024 are as follows:

Taxable Income	Tax Rate	Deduction
Up to ¥1.95M	5%	¥0
¥1.95M - ¥3.3M	10%	¥97,500
¥3.3M - ¥6.95M	20%	¥427,500
¥6.95M - ¥9M	23%	¥636,000
¥9M - ¥18M	33%	¥1,536,000
¥18M - ¥40M	40%	¥2,796,000
Over ¥40M	45%	¥4,796,000

Side job income is combined with salary income for taxation (comprehensive taxation). For example, if salary income is ¥4M and side job income is ¥500,000, the tax rate applies to the total ¥4.5M. In this case, a 20% tax rate may apply depending on taxable income after deductions.

Additionally, a special reconstruction income tax (2.1% of income tax amount) is imposed. The effective tax rate is income tax rate × 1.021.

Residential Tax

Residential tax is imposed on the previous year's income, with a flat rate of approximately 10% (4% prefectural + 6% municipal). Unlike income tax, it is not progressive.

Even if side job income is below ¥200,000, residential tax filing is required. Failing to file residential tax returns can affect national health insurance premium calculations and income certificates for various administrative services.

Impact on Social Insurance Premiums

For company employees, social insurance premium burden may increase if side job income exceeds a certain amount. However, if the side job is business or miscellaneous income, it generally does not affect social insurance premiums. If employed part-time at a side job, you may need to enroll in social insurance there under certain conditions.

Deductible Expenses

Accurately identifying necessary expenses is crucial for calculating side job income. Properly claiming expenses reduces income and consequently tax burden.

Direct Expenses

Costs directly necessary for conducting side jobs can generally be claimed as expenses.

Communication Costs

Internet connection fees, mobile phone call and data charges. However, if used for both business and personal purposes, you must prorate based on usage percentage. For example, if business use is 30%, you can claim 30% of communication costs.

Equipment and Consumables

Computers, smartphones, cameras, printers, stationery, paper, ink, external hard drives, etc. Items under ¥100,000 can be expensed entirely, while items over ¥100,000 must be depreciated over several years.

Software and Subscription Fees

Adobe Creative Cloud, Microsoft 365, cloud storage services, domain/server fees, paid tool monthly fees, etc.

Books and Seminar Fees

Professional books related to business, online courses, seminar participation fees, certification costs, etc. However, you must be able to explain the business relevance.

Transportation

Train, bus, taxi, gasoline, parking fees for business travel. Recording the purpose and date of travel is important.

Outsourcing Fees

Costs for outsourcing parts of side jobs to others. This includes design outsourcing, writing outsourcing, data entry services, etc.

Expenses Requiring Proration

When conducting side jobs at home, items used for both business and personal purposes must be prorated based on usage percentage.

Rent and Utilities

If part of your home is used as workspace, you can prorate based on area or time usage. For example, if you use 10 square meters as dedicated workspace out of 60 square meters total, you can claim approximately 17% of rent as expenses.

Vehicle Expenses

If using a personal vehicle for business, prorate by mileage ratio. If annual mileage is 10,000 km with 3,000 km for business, you can claim 30% of vehicle-related costs.

Non-Deductible Expenses

The following costs generally cannot be claimed as expenses:

• Personal expenditures (living expenses, entertainment, hobby costs)
• Expenditures unrelated to business
• Excessively high expenditures (luxury items disproportionate to business)
• Fines and traffic violation penalties

When claiming expenses, always keep receipts and record the purpose of expenditure. To explain during tax audits, clearly document evidence and business relevance.

Tax Filing Process and Using e-Tax

Here's a step-by-step explanation of the tax filing process when side job income exceeds ¥200,000.

Step 1: Prepare Necessary Documents

Tax filing requires the following documents:

• Withholding tax slip from main job
• Documents showing side job income (payment statements, invoice/receipt copies, bank deposit records)
• Expense receipts
• Documents for claiming deductions (medical expense receipts, life insurance premium deduction certificates, hometown tax donation receipts)
• My Number card or My Number notification card + identification

Step 2: Aggregate Revenue and Expenses

Aggregate annual (January 1 - December 31) side job revenue and expenses. Using Excel or accounting software is efficient. Cloud accounting software like freee, Money Forward, or Yayoi Blue Return can automatically categorize revenue/expenses and create tax returns, making them convenient.

Step 3: Create Tax Return

Using the National Tax Agency's "Tax Return Creation Corner" is easiest. Simply follow on-screen instructions and taxes are calculated automatically.

Tax returns previously had "Form A" and "Form B," but since 2023 they've been unified. If you have both salary income and side job income, use the unified form.

Step 4: Submit via e-Tax

Using e-Tax (National Tax Electronic Filing and Payment System), you can complete tax filing from home without visiting the tax office.

My Number Card Method

With a My Number card and IC card reader/writer (or smartphone compatible with My Number card reading), electronic filing is simplest.

1. Access National Tax Agency's Tax Return Creation Corner
2. Select "Submit via e-Tax - My Number Card Method"
3. Read My Number card and attach electronic signature
4. Create return and submit directly

ID/Password Method

Without a My Number card, you can file using ID/password issued by the tax office. Identity verification at the tax office is required initially, but subsequent filings can be done from home.

Step 5: Payment or Refund

If tax payment is required based on the tax return, pay by March 15. Payment methods include:

• e-Tax direct payment (bank account withdrawal)
• Credit card payment
• Convenience store payment
• Bank counter payment

If excess tax was withheld or refunds occur due to various deductions, the refund is deposited into your designated account within 1-2 months after filing.

Using the Freelance Income Calculator

Tools that can easily calculate actual income and tax amounts by simply inputting side job revenue and expenses are convenient.

Freelance Income CalculatorCalculate freelance net take-home pay after taxes, insurance, and expenses.

This tool automatically calculates income amount, income tax amount, and residential tax amount by inputting annual side job revenue and necessary expenses. If you have multiple income sources, you can input each and combine them.

Estimating with this tool before filing helps you understand tax amounts in advance and plan finances. You can also simulate how tax burden changes with different expense amounts.

Especially for those new to side jobs, understanding actual tax burden helps prevent panic over unexpected tax payments. Inputting revenue/expenses quarterly to check tax amounts enables planned preparation of tax funds.

Summary

Company employees earning more than ¥200,000 annually from side jobs must file tax returns. However, note that this ¥200,000 refers to "income" (revenue minus expenses), not "revenue."

Properly claiming expenses reduces income and tax burden. Communication costs, equipment costs, software fees, book/seminar fees, and transportation can be claimed if business-related. When working from home, part of rent and utilities can also be prorated.

Tax filing can be easily completed from home using the National Tax Agency's Tax Return Creation Corner and e-Tax. With a My Number card, visiting the tax office is unnecessary.

We recommend simulating tax amounts with the Freelance Income Calculator before starting a side job or filing taxes. Approach side jobs with confidence by having appropriate tax knowledge.

Disclaimer

This article is intended to provide general tax information and does not substitute for individual tax consultation or tax filing. Tax laws may change annually or situationally, and applicable regulations differ based on individual circumstances. For specific tax processing, please consult a tax accountant or tax office. We assume no responsibility for any damages arising from filing or payment based on information in this article.