U.S. taxes for Americans in Japan: what to file, and how to catch up.
Many Americans in Japan came to teach, married, and stayed, and all of them still file a U.S. return every year. Japanese tax, or the foreign earned income exclusion, usually covers the U.S. bill. The traps are NISA and Japanese investment trusts, which are tax-free in Japan but not for the IRS. Most people who fell behind can catch up under the Streamlined procedures, with no penalty if they qualify.
Sound familiar?
- You came to teach English and never thought about U.S. returns.
- Your Japanese bank or broker asked for a W-9 or your U.S. tax number.
- You opened a NISA because everyone said it was tax-free.
- Your employer enrolled you in the Japanese pension and an iDeCo.
How does the IRS treat NISA, iDeCo and other Japanese accounts?
Every one of these goes on your FBAR. What differs is how the IRS taxes them.
| Account | U.S. treatment | |
|---|---|---|
| NISA | Tax-free in Japan only. For the U.S., income and gains are taxable, and funds inside are usually PFICs. | Watch out |
| Japanese investment trusts | Usually PFICs (Form 8621), with complex reporting and tax rules. | Watch out |
| iDeCo | The treaty doesn’t shelter it for U.S. citizens living in Japan. U.S. treatment depends on the plan, and growth may not be tax-deferred in U.S. eyes. | Check first |
| Japanese pension (nenkin) | No U.S. tax while you pay in. Once you draw it, the U.S. can tax it too, with a credit for the Japanese tax. The treaty doesn’t exempt it for U.S. citizens. | Mostly friendly |
| Bank deposits | Interest is taxable, and the accounts count toward your FBAR total. | Taxable |
| Savings-type life insurance | Popular in Japan, but growth inside may be taxable for the U.S. if the policy doesn’t meet U.S. rules for life insurance. | Check first |
Which Japanese investments are PFICs?
Japanese investment trusts (toshin), including the all-world and S&P 500 index funds popular in NISAs, and ETFs listed in Tokyo. For U.S. tax they’re passive foreign investment companies, or PFICs, even when the fund invests in U.S. companies.
- Each fund needs its own Form 8621 in most years, and gains can be taxed at the top U.S. rate plus an interest charge, unless an election was made in time.
- Monthly NISA purchases each create their own block of shares for the PFIC rules, which multiplies the work.
- Not PFICs: shares of individual companies, including Japanese stocks held in a NISA, Japanese government bonds, and bank deposits.
A NISA holding individual Japanese stocks is far simpler for the U.S. than one full of investment trusts.
What does the U.S.–Japan tax treaty actually say?
The treaty was signed in 2003, and a protocol signed in 2013 took effect in 2019. For Americans living in Japan, these parts matter most:
- The saving clause. The U.S. can tax its citizens as if the treaty didn’t exist, except for the provisions the treaty lists.
- Relief from double tax. The U.S. gives a credit for Japanese income tax, and the local resident tax, on the same income.
- Pensions. The treaty doesn’t defer U.S. tax on iDeCo or exempt the Japanese pension for U.S. citizens, so both can be taxed by the U.S., with a credit.
Pension contributions are covered by a separate U.S.–Japan social security agreement, which generally means you pay into one system, not both. Read the U.S.–Japan tax treaty on IRS.gov.
When are Japanese and U.S. taxes due?
Both tax years run January to December, so each Japanese year lines up with one U.S. return. Your gensen choshuhyo, the year-end withholding slip, gives most of what the U.S. return needs.
| Japan | United States | |
|---|---|---|
| Tax year | January to December | January to December |
| Annual return | February 16 to March 15, if you have to file. Most employees are settled through year-end adjustment instead. | April 15, moved to June 15 automatically when you live abroad, or October 15 with an extension |
| Paying the tax | Withheld from your salary; resident tax is charged the following year, based on this year’s income | April 15, even if you file later |
| Foreign accounts | A report of assets abroad if they exceed ¥50 million | The FBAR, due October 15, filed online |
Foreign tax credit or exclusion: which wins in Japan?
It depends on your salary:
- Teachers and others on modest salaries usually use the foreign earned income exclusion. It covers up to $130,000 for 2025, more than most teaching salaries, and Japanese tax at that level can be lower than the U.S. tax would be.
- Higher earners usually do better with the foreign tax credit: Japan’s national rates reach 45%, plus resident tax.
- Families with children often keep the credit, because it allows the refundable part of the U.S. child tax credit, up to $1,700 per child for 2025.
- Resident tax lags a year, so matching it to the right U.S. year takes care.
We run your returns both ways before choosing. How we compare the exclusion and the credit.
A worked example: a teacher in Osaka
Emily came to Osaka to teach English in 2016 and stayed. She earns ¥3.6 million a year, pays into the Japanese pension, has an iDeCo, and puts ¥30,000 a month into an all-world index fund in her NISA. She has never filed a U.S. return.
| Item | How it’s handled |
|---|---|
| Salary | Well under the exclusion, so her U.S. income tax on it is $0. |
| Japanese pension | No U.S. tax while she pays in, and the social security agreement keeps her in the Japanese system rather than the U.S. one. |
| iDeCo | On the FBAR; growth could be taxable for the U.S., so we check the plan. |
| NISA index fund | A PFIC: a Form 8621 each year, with each monthly purchase tracked. |
| Catching up | Three years of returns and six FBARs under the Streamlined procedures, with no penalty if she qualifies. |
Catching up from Japan
Most Americans in Japan who fell behind without meaning to can catch up under the Streamlined Foreign Offshore Procedures: three years of returns, six years of FBARs and, if you qualify, no penalties. If only FBARs are missing, or you’ve moved back to the U.S., another route may fit better. See every IRS catch-up option for expats, compared.
Common questions
Is my NISA really taxable in the U.S.?
Yes. The NISA tax break only applies in Japan. Depending on what it holds, it may also need Form 8621 each year. We’ll show you the U.S. cost of keeping it.
Do I pay U.S. Social Security tax in Japan?
Generally not if you pay into the Japanese system. The U.S.-Japan totalization agreement prevents paying into both systems for the same work in most cases.
How do you handle yen amounts?
We convert using the correct IRS exchange rates for each year and account. It’s routine for us.
Is my iDeCo tax-deferred for the U.S.?
Not necessarily. The treaty doesn’t shelter it for U.S. citizens living in Japan, so growth may be taxable for the U.S., depending on the plan. We check yours before filing.
I'm an English teacher. Will I owe U.S. tax?
Usually not on your salary: the foreign earned income exclusion normally covers it. You still have to file to claim it, and an FBAR if your accounts topped $10,000.
My spouse is Japanese. How do we file?
Usually as married filing separately, so your spouse’s income stays off the U.S. return. Filing jointly is possible, but rarely better. Married to a non-American.
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