2025-2026 reforms to basic deductions and withholding tax

On March 4, 2025, Japan's lower house passed an increase to basic deductions: the deduction for employment income (給与所得控除) rose from 550,000 to 650,000 yen; the basic deduction for everyone (基礎控除) rose from 480,000 to 950,000 yen for those earning under 2 million yen. The combined tax-free threshold rose from 1.03 million to 1.6 million yen, and the income ceiling for a dependent rose from 1.03 million to 1.6 million yen a year. From 2025, the formula for calculating the 基礎控除 used in the year-end adjustment also changed: the deduction now depends not only on salary but on all other income (dividends, capital gains, etc.), which needs to be estimated in advance; a new form was introduced for this — "令和７年分給与所得者の基礎控除申告書兼給与所得者の配偶者控除等申告書兼給与所得者の特定親族特別控除申告書兼所得金額調整控除申告書" — filed annually. At the time of the chat discussion, some old calculators (e.g., HTM) still used 2024 formulas and gave incorrect results. Separately, from April 2026 ("源泉所得税の改正のあらまし（令和8年4月）"), the minimum 給与所得控除 rises further from 650,000 to 740,000 yen; the changes only apply to actual payroll starting with the December 2026 year-end adjustment, so payroll is unaffected before November 2026. Thresholds for dependents, spousal deduction and working students rise too; tax-free commuting allowance limits increase (parking cost up to 5,000 yen for cars/bicycles), and the tax-free ceiling on company meal benefits rises (3,500 to 7,500 yen/month; night meals 300 to 650 yen). From 2027 the surtax structure also changes: a new 防衛特別所得税 (defense surtax) of 1% is introduced while 復興特別所得税 (reconstruction surtax) drops to 1.1%, leaving the total 2.1% surtax unchanged. Source: https://www.nta.go.jp/publication/pamph/gensen/2026kaisei.pdf — Official NTA brochure on the April 2026 withholding tax reform..