Background to the 2026 Reforms
The Japanese government approved the 令和８年度税制改正の大綱 (FY2026 Tax Reform Outline) in December 2025 and associated legislation in early 2026. Its aim is to address inflation, fairness, economic growth, and international tax developments. (mof.go.jp) Major changes affect basic deductions, allowable employment income deductions, non-taxable thresholds, and tax credits. This article helps employees, investors, and advisors understand what’s new and how to plan.
What’s New for Individual Taxpayers
| Area | Change | Effect | Who Benefits Most |
|---|---|---|---|
| Basic (基礎) exemption & deductions | Basic exemption raised for those with total income ₩2,350 万円 or less; employment income deduction floor raised from ₩65万 to ₩69万. | Reduces taxable income for many low- and mid-income earners. | Employees earning under ₩20-30 million, particularly young workers or single earners. (mof.go.jp) |
| Non-taxable threshold (“課税最低限”) | Raised – temporary boost to income threshold so those earning up to ¥1.78 million may be tax-exempt. | Less tax for low incomes; buffer against inflation. | Part-time workers, students, early-career employees. (mof.go.jp) |
| Single parent deductions | Income tax deduction increased to ¥38万 (previously ¥35万); resident tax deduction to ¥33万 from ¥30万. | Supports single parents financially. | Those supporting dependents without a partner. (mof.go.jp) |
| High income tax rate adjustments | For very high incomes, the special deduction is cut from ¥33 million to ¥16.5 million, and rate increased from 22.5% to 30%. | Raises liabilities for top earners. | Executives, business owners, high threshold earners. (mof.go.jp) |
Planning Strategies
- Re-assess bonus timing: If you expect to exceed income thresholds, arrange bonuses and other income payments so they fall in tax years when your total income stays within lower brackets.
- Maximize eligible deductions: For example, ensure that employment-related expenses and other deductions are claimed, since the wage deduction floor increases, but your taxable income remains sensitive to bracket boundaries.
- Single parent households: If you qualify, prepare your documentation early to claim the higher deduction.
- Investment planning under NISA (Junior & child accounts): The extension to younger age-groups with new NISA rules (age 0-17) opens opportunities for investing via trusts or gift-arrangements benefitting minors.
What to Watch Out For
- Expiration of reliefs: The measure for education gift tax exemption for lump-sum gifts (from ancestors) is ending effective March 31, 2026, with no extension. If you intended to use this, act before the deadline. (mof.go.jp)
- Housing loan (住宅ローン控除) rules change: For “certified energy-efficient homes” and “ZEH” standard homes, loan limits and requirements are relaxed, and eligibility expanded, but conditions apply and documentation must meet new specs. (mof.go.jp)
Example: Mid-Income Employee Scenario
Suppose you are a salaried employee earning ¥18 million/year, married, no children: under previous rules you would exceed basic exemption and get taxed at higher bracket. Under the 2026 changes:
- The raised basic exemption lowers taxable income by approx ¥40,000.
- Employment income minimum deduction increases, reducing taxable base further.
- If you time bonuses so that your total income stays under the “non-taxable threshold” in years it matters, you may reduce liability by several tens of thousands of yen.
Actionable Checklist
- Review recent pay slips & income estimates to see if you cross any new thresholds.
- Collect documentation for dependents and single parent status by year-end.
- Adjust investment / bonus timing.
- If planning to purchase or renovate housing, ensure compliance with new energy efficiency or housing certification standards.
Bottom line: The FY2026 reforms aim to provide relief to low/mid incomes, raise burdens on the very high earners, and incentivize investment & energy efficiency. With careful year-end planning, many taxpayers can benefit significantly.