Japan Annual income limit: 1.78 million yen
Government and LDP to raise annual income threshold to 1.78 million yen
Agreement reached to raise annual income threshold to 1.78 million yen, with tax cuts providing more support to the middle class.
Section 1.
H ow much of a tax cut will this result in? According to calculations by Takuya Hoshino, chief economist at Dai-ichi Life Research Institute, the tax cuts resulting from the revisions from this fiscal year to next, when the threshold is scheduled to be raised from 1.6 million yen to 1.78 million yen, will be 9,000 yen for those with an annual income of 1.5 million yen, 7,000 yen for those Hoshino said, "This revision will increase the tax cuts especially for those with an annual income of 5 million to 6 million yen, which is expected to boost household finances," but added, "Even if the income tax threshold is raised to 1.78 million yen, there will still be people who are conscious of the threshold at which they start to have to pay local taxes.
The threshold at which social insurance premiums start to be levied also remains, and this needs to be discussed." Meanwhile, Onodera, chairman of the LDP's Tax Commission, has revealed that tax revenues are expected to fall by around 650 billion yen, and the government will need to explain how it plans to secure the necessary funds.
Section 2.
The government and the Liberal Democratic Party have decided to raise the "annual income threshold" at which income tax begins from the current 1.6 million yen to 1.78 million yen. The LDP, the Democratic Party for the People, and Komeito agreed in December last year to aim to raise the threshold to 1.78 million yen. The government and LDP will continue to coordinate with the Democratic Party for the People and others, aiming to include this in the outline of tax reform for fiscal 2026.
Income tax is by multiplying a tax rate of calculated 5 to 45% by the amount remaining after deducting basic deductions and employment income deductions from an individual's income. Until 2024, the annual income threshold at which income tax began to be levied was 1.03 million yen, the combined minimum guaranteed amount of basic deductions and employment income deductions. Following persistent criticism that this would "encourage people to work less," the threshold was raised to 1.6 million yen in 2025, but the Democratic Party for the People had called for a further increase.
Taking into account requests from the Democratic Party for the People, the government and the LDP plan to raise the annual income threshold in line with rising prices in the tax reform for fiscal 2014. They aim to introduce a system in which the basic deduction and other allowances will be reviewed every two years based on the rate of increase in consumer prices over the past two years. Taking into account the rate of increase in prices over the past two years (around 6%), the basic deduction will be raised from the current 580,000 yen to 620,000 yen. The minimum guaranteed amount for the employment income deduction will increase from the current 650,000 yen to 690,000 yen.
Furthermore, the government is adjusting the basic deduction for low-income earners to be increased by 100,000 yen from the current 370,000 yen, setting the annual income threshold at 1.78 million yen. This is in consideration of the Democratic Party for the People, which has called for an increase to 1.78 million yen based on the rate of increase in the minimum wage.
Regarding the annual income threshold for tax reform in fiscal 2013, negotiations between the ruling Liberal Democratic Party and Komeito and the opposition Democratic Party for the People ran into difficulties over funding and other issues. The ruling parties were forced to revise the tax reform outline they had already decided on, and ended up settling on 1.6 million yen.
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