Key Reforms Effective from 2026 Details
Japan’s recent tax reform (令和8年度税制改正の大綱) introduced important changes for high income taxpayers: the so-called “tax fairness” measures. (mof.go.jp)
What’s Changed?
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The special deduction amount from “基準所得金額” (standard income base used in surtaxes/additional burdens) is cut from ¥33 million to ¥16.5 million. Simultaneously, the rate that applies on income above that base is raised from 22.5% to 30%. These changes aim to increase fairness by increasing burden on very high incomes. (mof.go.jp)
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Basic deduction (基礎控除) increased by ¥40,000 for individuals with total income up to ¥23.5 million. For those above certain income levels, deductibility phases down. (mof.go.jp)
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Lowest guaranteed level for the salary income deduction raised from ¥65,000 to ¥69,000 for FY 2026 and 2027. (mof.go.jp)
How to Plan Accordingly
- Recompute your taxable income projections to see whether you cross new thresholds; you may be subject to higher effective marginal rates than under prior rules.
- If bonuses, RSUs, or capital gains are due, consider timing them to years when you are below the cutoff.
- Make use of deductions (like housing loan deductions, investment deductions, etc.) that can reduce taxable income before the higher surtax base applies.
- Adjust estimated withholdings so tax payments don’t result in large unexpected final assessments.
Example
Suppose Hiro, a Tokyo resident, expects ¥40 million of total income in 2026 from salary and investment. Under old rules, he was enjoying a ¥33 million special deduction and rate of 22.5% beyond that. Under new rules, only ¥16.5 million deduction applies; income above that is taxed at 30% special rate. This increases his tax payable significantly—proper planning around deductions and income recognition becomes essential.
Wrap-Up
These reforms reflect Japan’s shift toward greater progressivity at the top income levels. Taxpayers earning high incomes should revisit withholding, investment timing, and use of deductions now.