Little or no US tax usually falls on the salary of an American living in Japan: taxes there run higher and offset it.
Japan taxes you as a resident, and the IRS taxes you as a US citizen or green card holder. For most professionals, Japan’s taxes take 30% to 44% of each extra yen of taxable income. That combines the national tax, a 2.1% reconstruction surtax on it and the 10% inhabitant tax. The US rate on similar pay is usually 22% or 24%. A credit on Form 1116 then lets the Japanese tax cover the US tax on that pay.
Updated · Sources
For 2026 income in Japan
- 55.95%
- is Japan’s top rate on income, national and local tax combined, from ¥40,000,000 of taxable income.
- ¥18M
- is the most a NISA can hold at cost. Japan does not tax gains or dividends inside it, but the US does.
- 5 years
- is how long a newcomer without Japanese nationality can keep most foreign income out of Japanese tax, by holding it abroad.
For income from 2027, the reconstruction surtax falls to 1.1% and a new 1% defense special income tax is added.
What in your life in Japan changes your US return?
Your salary is taxed in Japan
The credit covers Japan’s income taxes only, so the consumption tax you pay on purchases earns none. Japanese tax the credit cannot use this year carries back one year, then forward for up to 10 years.
You have lived in Japan 5 years or less
In your first years in Japan, the US taxes foreign income that Japan leaves alone, with no Japanese tax to credit. A resident without Japanese nationality who has lived in Japan 5 years or less of the past 10 is a non-permanent resident. Japan taxes most of that person’s foreign-source income only if it is paid in Japan or sent there. Japan still taxes gains on foreign securities bought during those years. Pay for work done in Japan counts as Japanese income, wherever it is paid.
You are self-employed
The foreign earned income exclusion and the foreign tax credit can erase your US income tax, but neither reduces self-employment tax. The US-Japan totalization agreement, in force since October 1, 2005, decides which country’s social security tax you pay. If you are self-employed only in Japan, you generally pay into Japan’s system. A Japanese certificate of coverage then exempts you from US self-employment tax. If you move a US business to Japan for 5 years or fewer, you stay in US Social Security.
A US employer sent you to Japan
The same agreement generally keeps you in US Social Security alone if your assignment is expected to last 5 years or less. If you and every family member with you are certified as privately insured, you can also skip Japan’s health insurance contributions. You then cannot use Japan’s public health insurance. A longer assignment generally puts you in Japan’s system instead.
You hold accounts in Japan
An FBAR (FinCEN Form 114, the US report of foreign accounts) is due once your foreign accounts’ highest values total over $10,000. It lists each one, including the account that holds your NISA. Form 8938 has higher thresholds if you meet the IRS tests for living abroad. A single filer then files with over $200,000 of foreign financial assets at year end, or over $300,000 at any time.
An extra ¥1,000,000 of taxable income costs ¥304,200 to ¥436,930 in Japan, against ¥240,000 at the US 24% rate.
Japan taxes foreign residents at the same rates as its own citizens.
20% band
¥304,200
Japan’s 20% band covers taxable income from ¥3,300,000 to ¥6,949,000.
23% band
¥334,830
The 23% band runs from ¥6,950,000 to ¥8,999,000.
33% band
¥436,930
The 33% band runs from ¥9,000,000 to ¥17,999,000.
US 24% rate
¥240,000
One bracket lower, the US 22% rate would take ¥220,000 of the same income.
Each Japanese row sums the national rate, the 2.1% reconstruction surtax on that tax and the 10% inhabitant tax. In the 23% band, that makes ¥230,000, ¥4,830 and ¥100,000. In Tokyo, the 10% inhabitant tax splits into 4% metropolitan tax and 6% ward tax. The US row applies the 24% bracket, which covers $105,700 to $201,775 of a single filer’s 2026 taxable income. Each row is a share of the same ¥1,000,000, so no exchange rate is used.
How does Japan’s return compare with your US return?
The dates are for 2026 income, filed in 2027.
| Japan | United States | |
|---|---|---|
| Filing window | February 16 to March 15 | June 15, if you live abroad Form 4868 moves it to October 15 |
| Tax due | March 15 | June 15 With interest from April 15 |
| No return needed | Usually, one employer and pay up to ¥20,000,000 Tax withheld on it all, other income ¥200,000 or less | Gross income under the threshold Excluded pay counts; $400 or more of self-employment profit requires one |
| Gains on shares | 20.315% 15.315% national and 5% inhabitant tax | 0%, 15% or 20% Long-term rates, plus 3.8% above $200,000 of income (single) |
Tax withheld from the salary of an employee who files no Japanese return still counts toward the US credit.
What catches out a US return filed from Japan?
Japanese funds, in a NISA or not
Japanese investment trusts and ETFs generally meet the US test for a passive foreign investment company (PFIC), even inside a NISA. When you sell one, part of the gain can be taxed at the top US rate, plus interest. Each fund usually needs its own Form 8621.
Excluding pay you could credit
At Japan’s rates, the credit usually beats the exclusion. It can clear the US tax on your pay and carry the excess Japanese tax to later years. Japanese tax on pay you exclude on Form 2555 cannot be credited or carried to another year while the exclusion stands. If you revoke the exclusion, you cannot claim it again for 5 tax years unless the IRS consents.
The inhabitant tax runs a year behind
Japan bills the 10% inhabitant tax on last year’s income to people living there on January 1. A newcomer owes little of it in the first year, which can leave less Japanese tax to credit. Leaving does not end it, since a bill based on the year before you left can still come due.
Leaving with large holdings
Japan’s exit tax falls on a departing resident’s unrealized gains once securities and similar assets reach ¥100,000,000. It generally applies after more than 5 of the last 10 years in Japan. Years on a work visa do not count toward those 5, but years as a permanent resident or a Japanese citizen’s spouse do. With a tax agent in Japan and security (collateral), you can put off payment for 5 years, or 10 if extended. Moving back to Japan within that time can cancel the tax.
Expecting the treaty to cut your US tax
Article 1(4) of the 2003 US-Japan treaty, its saving clause, keeps the treaty from changing how the US taxes its citizens. The treaty leaves interest and most share gains to your country of residence, but that rule does not cut your US tax. The saving clause does let some articles apply to citizens, including Article 23 on double tax relief. A 2013 protocol, in force since August 30, 2019, rewrote that list.
A Valim CPA handles the US side of your taxes in Japan.
Valim’s CPAs prepare the US return for Americans in Japan. Your Japanese return and any Japanese tax advice stay with your accountant there.
- We credit the Japanese tax on your pay on Form 1116, and track the unused part for later years. We work with your accountant in Japan on the figures.
- We report your NISA income and list your Japanese accounts on the FBAR, and on Form 8938 if you pass its threshold. Your instant quote counts each account and each Japanese fund you hold.
- We check whether the credit or the exclusion leaves less US tax, starting with your first year in Japan.
- Your fee covers answering IRS or state notices about a return we prepared.
- We set US estimated payments for the tax on your NISA gains.
- Individual return
- from $195
- Business return
- from $495
We quote a flat fee before work starts. We do not bill hourly.
US tax questions about living in Japan.
Do I have to pay US taxes if I live in Japan?
You usually file a US return but owe little or no US tax. US citizens and green card holders in Japan must file once their gross income reaches the filing threshold. That threshold counts pay you plan to exclude, so excluded pay can still require a return. Japanese tax on a salary usually tops the US tax on it, so the foreign tax credit often leaves nothing to pay. Any US tax left is usually on income Japan does not tax, such as NISA gains.
Who taxes US Social Security if you live in Japan?
Both countries can tax US Social Security paid to a US citizen living in Japan. Article 17(1) of the US-Japan treaty lets only your country of residence tax pensions and social security. The saving clause keeps the US taxing its citizens anyway, since Article 17(1) is not among its exceptions. Article 23(3) sets the order in which the two countries credit each other’s tax. For Americans in Australia, by contrast, the US-Australia treaty lets only the US tax US Social Security.
Is a NISA tax-free for Americans?
No, a NISA is tax-free only in Japan. Since 2024, Japan has exempted NISA gains and dividends indefinitely, within limits measured at cost: ¥3,600,000 invested a year and ¥18,000,000 in total. No treaty article shelters a NISA from US tax, so its income is taxed like any other account’s. The US-Japan treaty also says nothing about iDeCo pension accounts, and the IRS has not addressed them. The US likewise taxes ISA income, which the UK exempts, so Americans in the UK face the same gap.
Does the Japanese inhabitant tax count toward the US foreign tax credit?
Yes, its 10% levy on income counts. US law credits income taxes paid to a foreign country’s political subdivisions, such as Japan’s prefectures and cities, as well as to the country itself. The US-Japan treaty covers only Japan’s national income tax, so this credit comes from US law, not the treaty. In Tokyo, the levy splits into 4% for the metropolitan government and 6% for your ward or city.
What is the tax rate in Japan for foreigners?
Foreign residents pay the same rates as Japanese citizens. National income tax runs from 5% to 45%, with a 2.1% reconstruction surtax on that tax, and the inhabitant tax adds 10% of income. From January 1, 2027, the surtax falls to 1.1% and a new 1% defense tax on income tax starts beside it. A newcomer without Japanese nationality can keep most foreign income held abroad out of Japanese tax for up to 5 years.
Sources
- US-Japan income tax convention (2003)
- Protocol to the US-Japan convention (2013)
- Japan National Tax Agency, income tax rates (Tax Answer 2260)
- Tokyo Metropolitan Government, Guide to Metropolitan Taxes 2025 (Suginami City copy)
- Japan National Tax Agency, individuals who owe income tax (Tax Answer 2010)
- Japan National Tax Agency, the final return (Tax Answer 2020)
- Japan National Tax Agency, tax on selling shares (Tax Answer 1463)
- Japan National Tax Agency, exit tax on departure (Tax Answer 1478)
- Japan Financial Services Agency, the NISA from 2024
- Social Security Administration, Totalization Agreement with Japan
- Social Security Administration, US international social security agreements in force
- Social Security Administration, totalization agreements overview
- Japan, Income Tax Act Enforcement Order, Articles 17 and 170 (e-Gov)
- Net investment income tax (IRC Section 1411)
- IRS, Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad
- IRS, Rev. Proc. 2025-32 (2026 inflation adjustments)
Reviewed and updated September 2026. General information, not advice for your situation.