What changes
The fiscal 2026 tax reform, enacted on 31 March 2026, changes three things for 2026 income, all in force from 1 December 2026:
- Basic deduction. The statutory amount rises from 580,000 yen to 620,000 yen, with a temporary addition for 2026 and 2027. For total income up to 4.89 million yen (salary up to about 6.65 million yen) the deduction is 1.04 million yen; from 4.89 million to 6.55 million yen of income it is 670,000 yen; above that, up to 23.5 million yen, 620,000 yen.
- Employment income deduction. The minimum rises from 650,000 yen to 740,000 yen for 2026 and 2027. Together with the basic deduction, salary up to 1.78 million yen is now free of income tax.
- Dependant income limits. A dependant or spouse qualifies for the main deductions with total income up to 620,000 yen, salary of 1.36 million yen, up from 580,000 yen. The special deductions for spouses and for relatives aged 19 to 22 now phase out up to 1.33 million yen and 1.23 million yen of income, and the working student limit is 890,000 yen.
Withholding from January to November 2026 is unchanged. The difference is settled in the December 2026 year-end adjustment, so most employees will receive a larger refund. New withholding tables reflecting the changes apply from January 2027.
Who it applies to
Every employer that runs the year-end adjustment, and every employee, especially those with a working spouse or student child.
Action for employers
- Confirm your payroll provider's 2026 forms and tables. The adjustment must use the National Tax Agency's revised table of employment income after deduction.
- Collect revised declarations in November. Employees who gain a dependant because of the higher limits must submit an amended dependant declaration noting the 1 December 2026 change.
- Plan for December refunds. Refunds come out of the withholding due for December; large refunds can carry into later months.
- Remind leavers. Employees whose last 2026 pay is before 1 December do not get the new deductions through payroll and must file a return.
Sources
- Income Tax Act, Articles 2, 28, 84 and 86, and Act on Special Measures Concerning Taxation, Article 41-16-2, as amended by the fiscal 2026 tax reform.
- National Tax Agency, outline of withholding tax changes (April 2026) and Q&A on the 2026 increase in the basic deduction (May 2026).