Japan 2025 Tax Reform: Key Changes to Income Tax Deductions

Introduction

From December 1, 2025, revisions to Japan’s Income Tax Act will come into effect. These reforms will apply to income tax for fiscal year 2025 onwards and will require changes to withholding procedures from December 2025, including year-end adjustments. Withholding procedures up to November 2025 remain unchanged.

The reforms cover:

1. Revision of the basic deduction

2. Revision of the employment income deduction

3. Creation of a special deduction for specified relatives

4. Revision of income requirements for dependents

   
   

1. Revision of the Basic Deduction

The basic deduction amount has been revised according to total income:

• Total income ≤ ¥1.32M: ¥950,000 (before: ¥480,000)

• ¥1.32M < income ≤ ¥3.36M: ¥880,000 (¥580,000 from 2027 onwards) (before: ¥480,000)

• ¥3.36M < income ≤ ¥4.89M: ¥680,000 (¥580,000 from 2027 onwards) (before: ¥480,000)

• ¥4.89M < income ≤ ¥6.55M: ¥630,000 (¥580,000 from 2027 onwards) (before: ¥480,000)

• ¥6.55M < income ≤ ¥23.5M: ¥580,000 (before: ¥480,000)

For total income exceeding ¥23.5M, the basic deduction amount remains unchanged.

Note:

The above deduction is composed of the basic deduction of ¥580,000 under Article 86 of the revised Income Tax Act, plus the additional amount under Article 41-16-2 of the revised Special Taxation Measures Act. If total income is ¥6.55M or less, the amount will be ¥580,000 plus ¥370,000, ¥300,000, ¥100,000, or ¥50,000 respectively. This additional amount applies only to residents.

The revision will also be reflected in the Withholding Tax Table for fiscal year 2026 onwards and in calculations for public pensions.

2. Revision of the Employment Income Deduction

The minimum guaranteed deduction for salary income has been raised:

• Before: ¥550,000

• After revision (from FY2025): ¥650,000

Corresponding revisions have been made to the Table of Salary Amounts After Employment Income Deductions for Year-End Adjustments (FY2025 onwards) and to the Withholding Tax Table (FY2026 onwards).

3. Creation of the Special Deduction for Specified Relatives

A new deduction has been introduced for specified relatives:

• Deduction of up to ¥630,000 per specified relative from the resident’s total income, depending on the relative’s income.

• Application requires submission of a Declaration of Special Deduction for Employees’ Specified Relatives at year-end adjustment.

Specified relatives are:

• Relatives aged 19 to 23 living in the same household (excluding spouses and full-time employees of blue/white-collar businesses)

• With total income between ¥580,000 and ¥1,230,000

• Includes foster children under the Child Welfare Act

Application at withholding (from Jan 2026):

• Salary: relative income over ¥580,000 and up to ¥1,000,000

• Public pensions: relative income over ¥580,000 and up to ¥850,000

  
  

4. Revision of Income Requirements for Dependents and Others

Aligned with the above revisions, income requirements are updated as follows:

• Dependents/spouses in same household: total income ≤ ¥580,000 (before: ≤ ¥480,000)

• Children living with a single parent: total income ≤ ¥580,000 (before: ≤ ¥480,000)

• Working students: total income ≤ ¥850,000 (before: ≤ ¥750,000)

Additionally, in line with the employment income deduction revision, the minimum guaranteed amount of necessary expenses for home workers has been raised to ¥650,000 (before: ¥550,000).

Reference: National Tax Agency – 2025 Tax Reform (Japanese)