Statutory definition

Contributions to the national government or local public entities (including port authorities pursuant to the provisions of the Port and Harbor Act (Act No. 218 of 1950)), excluding those deemed to result in special benefits to the contributor, such as the exclusive use of facilities established by the contribution by the contributor.

Article 78, Paragraph 2, Item 1 of the Income Tax Act. It is the first item among the items listing the contents of "specified donations" covered by the donation deduction under Paragraph 1 of the same Article.

The cited wording does not contain the term "furusato nozei" (regional tax donation). What is written is simply these two points: that the recipient of the donation is the national government or a local government, and that cases where it is recognized that special benefits accrue to the donor are excluded. From the perspective of tax law, furusato nozei is a donation to a local government as referred to in this item. It is not given special treatment by the name of the system, but falls under this item depending on who the recipient is.

The resident tax follows the same structure, and Article 37-2, Paragraph 1 of the Local Tax Act lists donations made to "prefectures, municipalities, or special wards" as the first category of deductible donations. Rather than there being a single statutory provision called hometown tax donation, the provisions regarding donations in the Income Tax Act and the Local Tax Act operate simultaneously.

Furthermore, how the return gift relates to the exclusion provisions of this issue cannot be determined from this wording alone.

Overview

The method for calculating the amount itself rough calculation of the upper limit for hometown tax donations are summarized in. From here on, we will look at the articles based on that premise.

What is the two thousand yen for?

Paragraph 1, Article 78 of the Income Tax Act states that when the amount listed in item 1 exceeds the amount listed in item 2, the excess amount is deducted. Item 1 is "the total amount of specified donations expended during the year," and item 2 is "2,000 yen." Of the donated amount, 2,000 yen is not included in the deduction calculation.

The same applies to resident tax. Article 37-2, Paragraph 1 of the Local Tax Act provides that if the total amount of donations exceeds "2,000 yen, an amount equivalent to 4 percent of the excess amount" shall be deducted from the amount of the income-based levy.

The so-called out-of-pocket amount of 2,000 yen refers to this same amount set forth in both laws. However, the legal provisions do not use the term "out-of-pocket." They merely state that there is a portion that is not included in the deduction calculation. For the portion exceeding the upper limit, which we will look at later, a financial burden remains apart from this 2,000 yen. You only pay 2,000 yen as long as you are within the upper limit.

Deductions are divided into three types.

The amount returned through the hometown tax donation program does not come from a single system. It is the total of three deductions with different characteristics.

The first is the income tax donation deduction. Because it is a deduction subtracted from income rather than directly from the tax amount, the refunded amount varies depending on the tax rate applicable to the individual. Even for the same donation amount, the amount refunded via income tax differs from person to person.

The second is the basic resident tax deduction. Article 37-2, Paragraph 1 of the Local Tax Act stipulates "4 percent" for prefectural resident tax, and Article 314-7, Paragraph 1 stipulates "6 percent" for municipal resident tax. Together, this makes 10 percent. If you reside in a designated city, the prefectural portion is "2 percent" and the municipal portion is "8 percent," but the total is still 10 percent. This is a deduction subtracted from the tax amount, and the rate is the same for everyone.

The third is the special resident tax deduction. It covers the remaining amount that cannot be absorbed by the income tax donation deduction and the basic deduction. It is also this special deduction where the upper limit becomes an issue.

The upper limit is 20 percent of the resident tax income levy amount.

The special deduction amount under the first paragraph shall be an amount equivalent to two-fifths (or one-fifth, in cases where the taxpayer has an address within the area of a designated city) of the amount obtained by multiplying the amount exceeding 2,000 yen out of the total amount of the special deduction-eligible contributions expended by the taxpayer liable for the income-based levy under the same paragraph during the preceding year by the rate specified in the respective items according to the classification of cases set forth in the following items (if such amount exceeds an amount equivalent to 20 percent of the amount of the income-based levy in cases where the provisions of Article 35 and the preceding Article are applied to the taxpayer, such amount equivalent to 20 percent).

This is Paragraph 11, Article 37-2 of the Local Tax Act. The part that corresponds to the upper limit is the parenthetical phrase at the end, which is the provision stating that when it exceeds "an amount equivalent to twenty percent of the amount of the income-based levy," that amount shall be the limit.

The "two-fifths" in the middle is the prefectural resident tax share, and Article 314-7, Paragraph 11, which defines the municipal resident tax, uses "three-fifths" in the same structure. Adding the two together makes the whole. Since a cap of 20 percent of the income-based levy amount is placed on each, the upper limit for the special deduction amount is 20 percent of the income-based levy amount in total.

This 20 percent is the reality of what is called the upper limit for the hometown tax donation program. As long as you stay within this limit, the amount exceeding 2,000 yen is absorbed by the three deductions, and once you have used up the limit, donating any further will not increase the special deduction. The portion that does not increase simply becomes your own out-of-pocket expense.

Therefore, the upper limit is calculated in reverse as the amount obtained by multiplying the amount exceeding 2,000 yen by the percentage in the table to be viewed later, right up to the point where it reaches exactly 20 percent of the income-based levy. The guideline for the upper limit is the amount obtained by dividing 20 percent of the resident tax income-based levy after adjustment deductions and before other tax deductions by the percentage applicable in the year of the donation, and adding 2,000 yen. For donations made during 2026, the percentage reflecting the special reconstruction income tax described later will be used. What determines the upper limit is not the circumstances of the donor, but the amount of that person's resident tax income-based levy.

What does a table showing a drop from 85 percent to 45 percent mean?

Paragraph 11 stipulates "the amount obtained by multiplying by the percentage specified in each of the following items according to the classification of the cases listed in the respective items." Item 1 of that paragraph is the following table.

The table above reproduces the main statutory rates. Estimates for donations made in 2026 use rates reflecting Special Income Tax for Reconstruction. For standard comprehensive taxation, the formula is 90 percent minus the income tax rate × 1.021. For income tax rates of 5%, 10%, 20%, 23%, 33%, 40%, and 45%, the corresponding percentages are 84.895%, 79.79%, 69.58%, 66.517%, 56.307%, 49.16%, and 44.055%.

The bracket is determined by taxable comprehensive income for resident tax less the adjustment for differences in personal deductions. This may differ from actual income-tax taxable income. Cases involving only separately taxed income use different calculations and cannot be assessed from this table alone.

Item 2 also specifies 90 percent for cases such as when taxable comprehensive income less the personal-deduction difference adjustment is below zero.

The statute does not explain the pattern of percentages. However, because the income tax donation relief deducts from income, higher-income taxpayers absorb more of the same donation through income tax relief. The basic resident tax credit is 10 percent for everyone. The remainder not absorbed by those two components becomes smaller as income rises, and the special credit covers that remainder. The declining percentages fit this relationship.

The practical significance lies in the reverse calculation above. Rising income increases the income-based resident tax amount while lowering the divisor percentage. These two effects together explain why the donation limit appears to grow faster than income.

Separate Limits of 40 Percent and 30 Percent

Apart from the 20-percent limit, the statutes cap the donation amount itself. Article 78, paragraph 1, item 1 of the Income Tax Act caps eligible donations at 40 percent of total income, retirement income, and forestry income combined.

Resident tax uses 30 percent. Articles 37-2, paragraph 1 and 314-7, paragraph 1 of the Local Tax Act both exclude amounts above 30 percent of the preceding year’s combined total, retirement, and forestry income. Income tax and resident tax thus use different percentages.

“Preceding year” is relative to the resident tax assessment year. A 2026 donation reduces 2026 income tax and FY2027 resident tax, both generally calculated from 2026 income. It does not mean the same donation uses current-year income for income tax but prior-year income for resident tax.

Points that require care in practice

• With a housing loan credit, the special credit’s 20-percent limit uses income-based resident tax after the adjustment credit but before housing loan and other tax credits. Combining credits may nevertheless prevent full use of the calculated relief. Distinguish the limit itself from the amount actually usable.
• If income deductions such as medical expenses increase, taxable comprehensive income and income-based resident tax fall, lowering the estimated donation limit. The applicable bracket may also change.
• Increasing iDeCo contributions reduces taxable income and income-based resident tax. Increasing retirement saving therefore lowers the estimated hometown donation limit.
• If annual income changes midyear—through reduced bonuses, a job change, or retirement after donations based on an early estimate—the limit changes. It becomes final only after year-end.
• Results can differ between the one-stop procedure and a tax return because one-stop relief is handled entirely through resident tax, without an income tax donation deduction. Filing a return for medical expenses or another reason invalidates the one-stop applications, so include donations to every municipality in the return.
• The limit is only an estimate. Income and deductions are not final until year-end, so no guaranteed safe maximum can be established midyear. Allow a margin.
• Statutory figures change through reform. Recent reform directions are discussed in Key points of the FY2026 tax system revision outline summarizing in

Legal basis

• Income Tax Act, Article 78, paragraph 1 (Donation Deduction) / Quoted wording: “Where a resident makes specified donations during a year and the amount in item 1 exceeds that in item 2, the excess shall be deducted from that year’s total income, retirement income, or forestry income.”
• Income Tax Act, Article 78, paragraph 1, item 1 (Donation Deduction) / Quoted wording: “Total specified donations made during the year, capped at forty percent of the combined total income, retirement income, and forestry income for that year.”
• Income Tax Act, Article 78, paragraph 1, item 2 (Donation Deduction) / Quoted wording: “Two thousand yen.”
• Income Tax Act, Article 78, paragraph 2, item 1 (Scope of Specified Donations) / Quoted wording: “Donations to the national government or local public bodies, including port authorities under the Port and Harbor Act (Act No. 218 of 1950), excluding donations conferring special benefits on the donor, such as exclusive use of facilities established through the donation.”
• Local Tax Act, Article 37-2, paragraph 1 (Prefectural Resident Tax Donation Credit) / Quoted wording: “Where the amount exceeds two thousand yen, four percent of the excess (two percent for taxpayers domiciled in designated cities)”; “where the total exceeds thirty percent of the preceding year’s combined total, retirement, and forestry income, that thirty-percent amount.”
• Local Tax Act, Article 37-2, paragraph 1, item 1 (Eligible Donations) / Quoted wording: “Prefectures, municipalities, or special wards.”
• Local Tax Act, Article 37-2, paragraph 11 (Special Credit) / Quoted wording: “The special credit is two-fifths (one-fifth for designated-city residents) of the amount obtained by multiplying eligible prior-year donations exceeding two thousand yen by the applicable percentage below, capped at twenty percent of income-based tax after application of Article 35 and the preceding article.”
• Local Tax Act, Article 37-2, paragraph 11, item 1 (Percentage Table) / Quoted wording: “Up to ¥1.95 million: 85 percent”; “Over ¥1.95 million through ¥3.3 million: 80 percent”; “Over ¥3.3 million through ¥6.95 million: 70 percent”; “Over ¥6.95 million through ¥9 million: 67 percent”; “Over ¥9 million through ¥18 million: 57 percent”; “Over ¥18 million through ¥40 million: 50 percent”; “Over ¥40 million: 45 percent.”
• Local Tax Act, Article 37-2, paragraph 11, item 2 (Percentage) / Quoted wording: “Ninety percent.”
• Local Tax Act, Article 314-7, paragraph 1 (Municipal Resident Tax Donation Credit) / Quoted wording: “Six percent of the excess (eight percent for designated-city residents).”
• Local Tax Act, Article 314-7, paragraph 11 (Special Credit) / Quoted wording: “Three-fifths.”

Sources Checked for This Calculation and Explanation

• Local Tax Act, Articles 37, 37-2, 314-6, and 314-7, and Supplementary Provisions Article 5-6(Personal-deduction difference adjustments, adjustment credit, and applicable percentages)
• National Tax Agency: Increase in the Income Tax Basic Deduction and Other FY2026 Tax Reforms
• Osaka City: FY2027 Municipal and Prefectural Resident Tax Changes(Calculation of employment income received in 2026)
• Ikoma City: Hometown Donation Credit Amounts(Relationship between the 20% limit and housing loan credit; see the explanation for 2026 donations)