“You don't need to file a tax return if your side income is ¥200,000 or less, right?” Well, that's only half true. In some cases, you may not need to file an income tax return, but resident tax filing is a separate matter. If you overlook it, you could be billed later for late payment charges or a non-filing penalty.
Based on information current as of March 2026, this article explains the resident tax rules that employees with side income often miss, along with the basic steps for filing correctly.
What Is the “¥200,000 Rule”?
If you're an employee and your side-job income is ¥200,000 or less per year, you may be exempt from filing an income tax return. This is commonly called the “¥200,000 rule,” and it's provided under Article 121 of Japan's Income Tax Act.
The important point is that this is about income, not revenue. In other words, if your side-business revenue minus necessary expenses is ¥200,000 or less, you generally don't need to file an income tax return.
However, this rule has three conditions.
- You are an employee with salary income from one employer and your year-end tax adjustment has been completed
- Your salary revenue is ¥20 million or less
- You have no other reason to file a tax return, such as claiming medical expense deductions or using hometown tax payments outside the one-stop exception system
If you meet these conditions, you don't need to file an income tax return when your side income is ¥200,000 or less. Many people know this part. The problem comes next.
Resident Tax Doesn't Have a “¥200,000 Rule”
This is the biggest trap. There is no resident tax rule that says you don't have to file if your side income is ¥200,000 or less.
The income tax “¥200,000 rule” is a special rule for national tax, meaning income tax. It doesn't apply to local tax, meaning resident tax. Under Article 317-2 of the Local Tax Act, residents with certain income are required to file with their municipality.
In short, if you earn even ¥10,000 of side income, you're generally required to file a resident tax return.
Here's the rough breakdown.
| Side Income | Income Tax Return | Resident Tax Filing |
|---|---|---|
| Over ¥200,000 | Required | Not required separately, because tax return data is shared automatically |
| ¥200,000 or less | Not required | Required. You file with your municipality yourself |
| ¥0, no side job | Not required | Not required |
When you file an income tax return, the tax office automatically sends the data to your municipality, so you don't need a separate resident tax filing. But if you don't file an income tax return, your municipality won't know about your side income unless you report it yourself.
What Happens If You Don't File? Penalties and Real Risks
You might think, “They'll never find out,” but the risk isn't zero.
Non-Filing Penalty
If you fail to file a resident tax return, you may be charged a non-filing penalty. As a general rule, an additional 15% is added to the tax you should have paid, and 20% may apply to the portion over ¥500,000.
Late Payment Charges
Taxes paid late may also be subject to late payment charges. In 2026, the rate is roughly 2.4% per year for the first two months after the due date, and about 8.7% per year after that. The exact rate changes each year based on the special standard rate.
When Your Employer Might Notice Your Side Job
Resident tax is usually withheld from your paycheck through your employer. If resident tax from your side income is added on top, someone in payroll may wonder, “Why is this person's resident tax so high?” If you don't want your employer to know about your side job, it's important to choose ordinary collection when filing your resident tax return. More on that below.
How to File a Resident Tax Return in 5 Steps
Filing a resident tax return is much simpler than filing an income tax return. Here's how to do it.
Step 1: Prepare the Required Documents
- Resident tax return form, available at your municipal office or downloadable from its official website
- Withholding tax slip from your main employer
- Documents showing your side income, such as payment records, fee statements, or sales ledgers
- Receipts for expenses that prove costs related to your side work
- My Number card, or your notification card plus ID documents
Step 2: Calculate Your Income
Your side-job “income” equals revenue minus necessary expenses. For example, if you made ¥150,000 in annual sales on a flea market app and spent ¥50,000 on inventory and shipping, your income would be ¥100,000.
Step 3: Fill Out the Form
The form differs by municipality, but you'll usually enter the following information.
- Your name, address, and My Number
- Your salary revenue and income from your main job
- Your side-business revenue, expenses, and income
- Deductions such as the basic deduction and social insurance premium deduction
Step 4: Check “Ordinary Collection”
In the section for “resident tax collection method,” choose “pay by yourself” or “ordinary collection”. This means the resident tax for your side income won't be withheld from your employer's payroll. Instead, you'll receive payment slips at home and pay it yourself.
Note: Depending on the municipality, you may not be able to choose ordinary collection if your side job is classified as salary income. If you're unsure, check with your municipal office in advance.
Step 5: Submit the Return
There are three ways to submit it.
- In person: Take it directly to the tax department at your municipal office. This is a good option the first time because staff can check for missing items on the spot
- By mail: Send it with copies of the required documents
- Electronically: If your municipality supports eLTAX, you can submit it online
The filing deadline is generally the same as the income tax return deadline: March 15. For 2026 income, the deadline is March 15, 2027.
Common Question: Is It Easier to Just File an Income Tax Return?
Actually, even if your side income is ¥200,000 or less, you can choose to file an income tax return anyway.
If you file an income tax return, the tax office automatically sends the information to your municipality, so you won't need to file a separate resident tax return. Also, if tax has already been withheld by your side-job client, you may receive a tax refund through the return.
That said, filing an income tax return also makes your side income subject to income tax, so you may end up owing additional income tax. The better choice depends on your situation, so if you're unsure, talk to a tax accountant or your local tax office.
Accounting software for freelancers, such as freee or 弥生会計, can also make it relatively easy to prepare an income tax return.
FAQ
Do I need to file resident tax even if my side income is only a few thousand yen?
In principle, yes. However, some municipalities have non-taxable thresholds if your total income is below a certain amount, such as ¥450,000 or less for a single person. If you have salary income from your main job, resident tax will generally apply, so you should report your side income too.
Do I need to report sales from Mercari or Yahoo! Auctions?
Selling personal household items, such as clothes you no longer wear or appliances you no longer use, is generally tax-exempt as a transfer of personal-use property. However, if you're buying items for resale, or selling precious metals, antiques, or similar items worth more than ¥300,000 each, those sales may be taxable.
I forgot to file my resident tax return. Can I still do it now?
Yes, you can still file for past years. Once you realize the mistake, contact your municipality as soon as possible. If you file voluntarily, the non-filing penalty may be reduced in some cases.
Do I need to file resident tax if my side job is a part-time job with salary income?
Yes. Your part-time employer will submit a salary payment report to your municipality, so the income will likely be known anyway. Still, filing can help ensure your deductions are reflected correctly.
References
- Who Needs to File an Income Tax Return as a Salary Earner — National Tax Agency Tax Answer No.1900
- Individual Resident Tax — Ministry of Internal Affairs and Communications
- Do You Need to File an Income Tax Return and Resident Tax Return Even If Side Income Is ¥200,000 or Less? — freee Accounting
- Are Income Tax and Resident Tax Filings Unnecessary If Side Income Is ¥200,000 or Less? — Yayoi Co., Ltd.
