— Revisions Related to Individual Taxation —
(1) Overview of the FY2026 Tax Reform Outline
(2) Corporate Tax Reform
(3) Individual Income Tax Reform
(4) Consumption Tax Reform
(5) International Tax Reform
On December 26, 2025, the Japanese government approved the FY2026 Tax Reform Outline.
In this article, we will summarize the FY2026 tax reform measures that are expected to have the most significant practical impact in the areas of individual taxation.
1. Revision of the Basic Deduction and Employment Income Deduction
The so-called “income wall” has been revised, and the annual income threshold at which income tax begins to apply will be increased to JPY 1.78 Million.
For individuals with aggregate income of JPY 23.5 Million or less:
Income Tax
Before Reform:
Basic deduction (JPY 580,000) + Special basic deduction (JPY 370,000) + Employment income deduction (JPY 650,000) = JPY 1.60 Million
After Reform (FY2026–FY2027):
Basic deduction (JPY 620,000) + Special basic deduction (JPY 420,000) + Employment income deduction (JPY 690,000) + Special employment income deduction (JPY 50,000) = JPY 1.78 Million
Resident Tax
Before Reform:
Aggregate income threshold (JPY 450,000) + Employment income deduction (JPY 650,000) = JPY 1.10 Million
After Reform:
Aggregate income threshold (JPY 450,000) + Employment income deduction (JPY 690,000) + Special employment income deduction (JPY 50,000) = JPY 1.19 Million
The reform consists of both permanent and temporary measures. Permanent measures include increasing the basic deduction (from JPY 580,000 to JPY 620,000 for individuals with aggregate income of JPY 23.5 Million or less) and raising the minimum employment income deduction (from JPY 650,000 to JPY 690,000). In addition, temporary measures such as an additional basic deduction will apply for FY2026 and FY2027. As a result, the minimum taxable threshold for employment income earners will increase from JPY 1.03 Million to more than JPY 1.78 Million.
2. Revision of Related Income Thresholds for Dependency Determinations
| Eligible Deductions | Before Reform | After Reform |
| Income threshold for dependent spouses and dependents: | JPY 580,000 or less | JPY 620,000 or less |
| Income threshold for specified relatives | Over JPY 580,000 and up to JPY 1.23 Million | Over JPY 620,000 and up to JPY 1.23 Million |
| Spousal special deduction eligibility threshold | Over JPY 580,000 and up to JPY 1.23 Million | Over JPY 620,000 and up to JPY 1.23 Million |
| Working student income threshold | JPY 850,000 or less | JPY 890,000 or less |
3. Extension and Revision of the Mortgage Loan Tax Credit
| Eligible Deductions | Before Reform | After Reform |
| Application period | Until December 31, 2025 | Extended to December 31, 2030 (five-year extension) |
| Energy-efficient housing | Current system | Preferential treatment for certified housing and ZEH-standard energy-efficient housing will be revised. |
| Households raising children | Current system | Expanded eligibility for additional benefits and relaxed floor-area requirements. |
4. Expansion of NISA
| Eligibility | Before Reform | After Reform |
| Eligible age for opening a “Tsumitate” Investment Account | 18 and older | Expanded to individuals aged 0–17 |
| Annual investment limit for ages 0–17 | None | JPY 600,000 |
| Tax-exempt holding limit for ages 0–17 | None | JPY 6,000,000 |
5. Revision of the Single Parent Deduction and High-Income Earner Measures
| Item | Before Reform | After Reform |
| Single Parent Deduction (Income Tax) | JPY 350,000 | JPY 380,000 |
| Single Parent Deduction (Resident Tax) | JPY 300,000 | JPY 330,000 |
| Special deduction amount (ultra-high-income earners) | JPY 330 Million | JPY 165 Million |
| Tax rate (ultra-high-income earners) | 22.5％ | 30％ |
6. Practical Considerations
From a practical perspective, attention should be paid to the timing of the application. While many of the income tax amendments apply from FY2026 onwards, certain changes relating to payroll withholding tax and withholding on public pension payments will only be reflected in payments made on or after January 1, 2027.
7. Summary
The FY2026 individual tax reform can be characterized by four key objectives: reducing taxpayer burden through increased deductions, addressing the so-called “income wall”, supporting home purchases and asset formation, and enhancing tax equity.
Although detailed amounts and specific requirements should be reviewed separately, understanding the reform through these four perspectives—tax relief, employment adjustment measures, household support, and fairness—provides a useful overview of the overall framework.
Disclaimer: All views expressed in this article are solely for informational purposes and should not be construed as legal advice. This information is for reference only and is bound to change in case of any amendments or changes to applicable laws. We do not assume any responsibility or liability for any errors or omissions in the content of this article, and do not make any warranties about the completeness, reliability and accuracy of the information expressed in this article.