Taxes are collected in 3 situations: when you earn, when you spend, and when you own.
Income, consumption, assets
How Taxes, Pensions, and Social Insurance Work
How do taxes, pensions, and social insurance connect to your own money?
Why do we pay, and when do we receive benefits? We will examine the connection between your contributions and the system.
Time to read the text: about 10 min
The review questions are optional and not included in this time.
What you can read: the course opening and contents are free; the full text is for those who have purchased
After purchase, you can read the full text once your access starts.
Taxes, Pensions, and Social Insurance in 3 Minutes
1See it
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Income tax has 7 brackets, from 5% to 45%.
The more you earn, the higher the rate.
Consumption tax is a percentage of the amount you spend. The standard rate is 10%; 8% for food and drinks.
Even with different rates, the system is the same.
Japan's pension system uses contributions from today's workers to support today's retirees.
It's not saved in your own account (it's a pay-as-you-go system).
The contribution rate for the Employees' Pension is 18.3%. You and your employer each pay half.
The National Pension contribution is 17,920 yen per month (in FY 2026).
The standard age is 65. For each month you delay, it increases by 0.7%. For each month you start early, it decreases by 0.4%.
The increased or decreased rate stays the same for life.
At the hospital, you pay: 30% if you're under 70, 20% for ages 70-74, and 10% if you're 75 or older.
There's a monthly cap on payments (High-Cost Medical Expense Benefit System).
FY 2026
1/4 of the national budget goes to paying back past debt and interest.
31.3 trillion yen
National debt service. Total government spending is 122.3 trillion yen.
FY 2026
Pensions went up 1.9%, but prices went up 3.2%.
Even if the amount increases, your buying power decreases.
2In numbers
122.3trillion yen
The national government's general account spending for FY 2026. The 3 biggest items:
84%
The maximum increase if you delay your pension until age 75. If you start early, the maximum decrease is 24%.
3What would you do?
You can choose when to start receiving your old-age pension. You can start early, at the standard age, or later. What happens in each case?
Pick one
Start early, from age 60
For each month you start early, your payment is reduced by 0.4%. The maximum reduction is 24%. This reduced rate is for life.
Start at the standard age, 65
Age 65 is the standard. Starting earlier reduces your payments, and starting later increases them.
Delay until age 70 or later
For each month you delay, your payment increases by 0.7%. If you delay until age 75, the maximum increase is 84%. This increased rate is also for life.
Start early, get less. Start late, get more. The rate is set for life once you choose. The rules can be different depending on your birth year, so be sure to check the chart for your year of birth.
4Read more
"The nation's money" may sound like a distant topic. But the deduction column on your payslip, the estimated amount on your pension statement, the amount you pay at the hospital reception—all are numbers determined by national systems, and they affect your wallet every month.
Taxes can be divided by whether they are levied on income, consumption, or assets. Pensions are fundamentally based on a pay-as-you-go system, where the premiums of today's workers are distributed to today's beneficiaries. For medical and long-term care, the co-payment rate at the point of service varies with age and income. In the national budget for fiscal year 2026, about a quarter of expenditures will be financed by new borrowing. Foreign exchange rates come to the storefront through the prices of imported goods.
Systems differ from country to country. In the United States, the Social Security tax is 6.2 percent, paid by both the employee and the employer. In the United Kingdom, pension eligibility is earned through National Insurance contributions. However, the principles are common: "working people pay and it is distributed to recipients" and "if prices rise, the value of the nominal amount falls."
This is not a course for memorizing systems. It is a course for re-reading the numbers on your own documents from the perspective of the system. The numbers are taken from primary sources, accompanied by the time point, unit, and denominator.
What you will understand after this course
- Be able to classify taxes into three categories—income, consumption, and assets—and identify which category the taxes you pay fall into.
- Be able to distinguish between the pay-as-you-go and funded systems for public pensions, and read the projected amount on your pension statement as a nominal figure.
- Be able to determine the co-payment rates and caps for medical and long-term care based on age and income brackets.
More about this course
Course number: P5 — How do taxes, pensions, and social insurance connect to your own money?
Supervised by: Mitsuru Hayama
Beyond the text: 6 exercises · 2 coins · 3 readings How reading times are calculated
You will also understand
- Be able to translate news about public finance, government bonds, and foreign exchange into the pathways that affect your own financial burdens and benefits.
You can start this course without reading any other course.
Also worth reading, to see the connections (optional)
- Deciphering Amounts, Percentages, and Statements
What you learn: Can distinguish between nominal and real values, and can personally calculate the erosion of real value using the inflation rate.
Assessment
6 exercises in this course (4 check, 0 compare, 2 written). Progress is recorded by self-assessment.
The 8 chapters of this course
- The three gateways of tax — income, consumption, and assetsTaxes are classified in two ways: by who imposes them and by the phase in which they are collected. The phases are income, consumption, and assets.
- How Pensions Work — The Pay-As-You-Go and Funded SystemsJapan's public pension system is primarily based on the pay-as-you-go model. Premiums paid go to current recipients, not into your own account.
- Insurance Premiums in Practice — The Rate and Amount You PayLook not only at the rate, but also at the denominator and the cap. Japan applies 18.3 percent to standard remuneration; the US applies 12.4 percent to earnings up to a cap.
- Starting Age — Early and Deferred CollectionThe starting age determines the lifelong rate. In Japan, it's a 0.7 percent increase or 0.4 percent decrease per month.
- Medical and Long-Term Care Costs — The Percentage Paid at the Point of ServiceThe co-payment percentage is determined by age and income, and there is a monthly cap. Long-term care premiums are paid from age forty, with a 10% co-payment as a general rule.
- Public Finance and Government Bonds — A Quarter of Expenditures is DebtOf the 122.3 trillion yen in expenditure, social security accounts for one-third and national debt service for one-quarter. One-quarter of revenue is new borrowing.
- How Exchange Rates Affect Daily Life — Strong Yen and Weak YenA strong yen means one yen can buy more dollars. The exchange rate is set by supply and demand, affecting household finances through import prices and the following year's pension revision.
- Pensions and Prices — Nominal Amounts and Real ValueThe estimated amount on the statement is nominal. If the revision rate is lower than the inflation rate, purchasing power decreases. The Macroeconomic Slide does not lower the nominal amount.
Readings (3)
- The Satsuma Rebellion and inflation Japan 1876 Tokyo
Sections 2 and 3. Meiji 9 (1876), When Samurai Stipends Were Converted to Government Bonds. Whether one can live on the interest depends on the denominator. - The paper they printed too much of France 1795 A street corner, Paris
Section 8. 1795, When Those on Fixed Pensions Lost Out to Paper Money Depreciation. - The costs of the wars with China and Russia Japan 1894–1895 Tokyo, the Finance Ministry
Section 6. Meiji public finances: Borrowing through government bonds to cover expenditures that could not be met by taxes.
Read next
Finding Financial Information and Advice →What you learn next: Can analyze information relevant to daily life by asking "who, when, and on what basis," and can trace it back to the primary source.
Time to read the text: about 10 min ／ What you can read: the course opening and contents are free; the full text is for those who have purchased
Price
After purchase, the full courses, the illustrated books, every country’s story and the numismatics examination are open to you.
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