Japan Basic Deduction 2026: ¥100K Increase + Furusato Nozei Changes You Missed

Every year in February, I sit down at my PC, open e-Tax (Japan’s online tax filing system, similar to TurboTax), click through a few screens, and file my tax return. Furusato nozei donations — that’s it. Ten minutes, tops. A refund of about 20,000 yen ($130) shows up in my bank account a few weeks later, like a little bonus I forgot I was owed.

This year was no different. Click, click, submit, done.

Except afterwards, I idly searched “2026 tax return changes Japan” — and my jaw dropped. The basic deduction had jumped massively. The famous “1.03 million yen wall” had been demolished and rebuilt at 1.6 million. There was a brand-new deduction for parents of college-aged kids. iPhones could finally read My Number cards. All of this had already happened, and I’d filed my return without knowing any of it.

I’d completed the test without reading the new syllabus. If you’re in the same boat — filed your return but have no idea what actually changed this year — here’s everything I found when I panic-searched afterwards. (And if the idea of filing a tax return in Japan still sounds intimidating, my post on why tax season is nothing to fear might change your mind.)

My Tax Filing Background

The first time I ever filed a tax return was when I exercised stock options at work. I had absolutely no idea what I was doing. A colleague and I literally walked into the tax office together, probably looking like lost puppies.

The staff there were incredibly patient. They walked me through every single line, spending way more time than I deserved. I was genuinely grateful. But my main takeaway was: “I cannot do this every year.”

Fast forward to today, and I file everything through e-Tax from my couch. No paper, no office visits, no waiting in line. What used to be a half-day ordeal is now a coffee break. Japan’s tax digitalization doesn’t get enough credit.

These days, I file annually for furusato nozei (hometown tax donations — Japan’s unique program where you “donate” to local governments, get regional specialty products as thank-you gifts, and deduct it from your taxes). My wife and I both participate, so between us we donate 70,000 to 150,000 yen ($460 to $1,000) per year. “Tax filing” sounds intimidating, but honestly, it’s shockingly painless once you’ve done it once.

The Basic Deduction Jumped From 480,000 to 580,000 Yen. Free Money

This was the headline change for 2026.

Japan’s basic deduction (kiso kojo) — the amount every taxpayer can subtract from their income before taxes are calculated — went from 480,000 yen to 580,000 yen. (The National Tax Agency publishes the official rates, though the English pages lag behind the Japanese ones.) If your total income is under 23.5 million yen (about $155,000), which covers the vast majority of salaried workers, your taxable income automatically dropped by 100,000 yen. You didn’t have to do anything. No forms. No applications. It just happened.

For people earning 1.32 million yen or less, the basic deduction can go as high as 950,000 yen. That’s mainly relevant for part-time workers, not full-time salarymen like me, but it’s a significant bump for households where one spouse works part-time.

The employment income deduction also expanded from 550,000 to 650,000 yen. Combined with the basic deduction increase, these two changes pushed the “minimum taxable income threshold” from 1.03 million to 1.6 million yen. That’s the “wall” you keep hearing about in Japanese news.

One critical caveat: the portion of the basic deduction above 580,000 yen (the part that can reach 950,000) is a temporary measure for 2025 and 2026 only. It’s scheduled to revert to a flat 580,000 in 2027. So don’t build your long-term financial plans around the higher number. These kinds of rule changes ripple further than you’d expect — for example, iDeCo’s exit strategy is also affected by shifting tax rules, and most people (myself included) don’t notice until it’s almost too late.

For me personally — income under 6.55 million yen — the basic deduction is 580,000. That extra 100,000 in deductions, at a 20% income tax rate, saves me about 20,000 yen in income tax. Add in the resident tax savings and it’s roughly 30,000 yen ($200) per year.

Thirty thousand yen. That’s about a case of beer delivered to your door every month. Not life-changing, but considering I did absolutely nothing to earn it, I’ll take it. If you’re curious where that extra 30,000 yen fits in a real dual-income household budget, here’s ours laid bare.

The “1.03 Million Yen Wall” Is Now the “1.6 Million Yen Wall”

I’ll be honest: this change doesn’t directly affect my household. My wife works full-time, so we’ve never worried about the income wall. Both our incomes blow past 1.03 million without a second thought.

But for families where one spouse works part-time, this is enormous.

The old system meant that earning over 1.03 million yen triggered income tax, so part-time workers would carefully manage their hours to stay under the threshold. Entire scheduling conversations in workplaces revolved around this number. “How many more shifts can I take before I hit the wall?” was a real question people asked every November.

Now that threshold is 1.6 million yen. That’s an extra 570,000 yen ($3,800) per year of tax-free earning capacity — roughly 50,000 yen more per month. The spouse deduction threshold also expanded from 1.03 million to 1.23 million yen.

Even if this doesn’t affect you directly, it’s worth mentioning to colleagues, family members, or friends who have a part-time working spouse. They might not know yet, and the difference is real.

New Deduction for Parents of College-Aged Kids

Here’s a brand-new one I’d never heard of: tokutei shinzoku tokubetsu kojo (Special Relatives Special Deduction). Try saying that three times fast.

In plain English: if you have a child aged 19 to 22 — college age in Japan — they can now earn up to 1.5 million yen ($10,000) from part-time work before you lose the dependent deduction. Previously, once a child’s income exceeded 1.03 million yen, the parent’s deduction vanished entirely. Gone. Zero.

This created a painful dynamic in Japanese families. Parents would literally tell their college kids, “Please don’t earn more than 1.03 million.” Students working multiple part-time jobs would cut their hours in December to stay under the limit. It was a bizarre dance where earning more money could actually cost the family money overall.

The new system is much more humane. Even above 1.5 million, the deduction phases out gradually up to 1.88 million yen instead of cliff-diving to zero. That “one yen over the line and you lose everything” terror is gone.

My daughter is still in elementary school, so this doesn’t apply to me yet. But she’ll be college-aged in less than ten years. I’m filing this one away in my mental “things I’ll be glad I already knew” folder.

iPhones Can Finally Read My Number Cards

This one’s less dramatic but genuinely convenient. iPhones can now read Japan’s My Number card (the national ID card with an embedded IC chip) using NFC.

Android phones have been able to do this for years, but iPhone users were stuck buying a separate IC card reader or making do with workarounds. Starting this year, you can authenticate your My Number card with Face ID or Touch ID on your iPhone and log directly into e-Tax. No more fumbling with the card every time.

The integration with My Number Portal (the government’s personal data hub) keeps improving too. Furusato nozei donation receipts and life insurance deduction data now auto-populate in your tax return. No more manually typing amounts and praying you didn’t misplace a decimal.

I still filed from my PC this year out of habit, but next year I’m going to try doing the whole thing on my phone. Filing your tax return from the couch in your pajamas — that future is basically here. If you want to see the full e-Tax walkthrough, the National Tax Agency’s filing portal is the starting point.

If You Use Both Furusato Nozei and Medical Expense Deductions, Read This

One last thing I want to flag, because people apparently get burned by this every year.

Furusato nozei has a simplified system called the “One-Stop Special Exception” (wanstoppu tokurei) where you just mail postcards to each municipality instead of filing a full tax return. It’s convenient if you donate to five or fewer places.

But here’s the trap: if you also want to claim a medical expense deduction in the same year, you have to file a full tax return. And the moment you file a full return, the One-Stop Exception is automatically voided for all your furusato nozei donations. You must re-declare every single donation in your tax return. If you don’t, you lose those deductions entirely.

“I’ll just file for the medical expenses and leave furusato nozei on the One-Stop system” does not work. The system doesn’t allow it. This catches people off guard more often than you’d think.

There’s a secondary gotcha too: claiming medical expense deductions reduces your taxable income, which in turn can lower your furusato nozei deduction cap. Same thing if you have a mortgage interest deduction (jutaku loan kojo). When you’re stacking multiple deductions, run the numbers through a simulator site first. The interactions between deductions can be surprisingly unintuitive.

I only file for furusato nozei right now, so this isn’t my problem yet. But as my daughter grows up and medical expenses potentially increase, I know this is the kind of knowledge that pays for itself.

The Difference Between Knowing and Not Knowing Is Real Money

Filing taxes in Japan has become genuinely easy. E-Tax, ten minutes, done. I can barely recognize my former self — the guy who panic-walked into the tax office with a coworker, clutching a stack of papers he didn’t understand.

But “easy to file” and “knowing what changed” are two completely different things. The basic deduction change alone is worth 20,000 to 30,000 yen per year. That compounds. Over a decade, we’re talking hundreds of dollars, from a change that required zero effort on your part — as long as you knew about it.

What I wish I’d told my past self: “Just try it. It’s easier than you think.” What I need to tell my current self: “Don’t just file. Read the patch notes first.”

Next year, I swear I’ll check what changed before I file. But let’s be real — I’ll probably finish the return first and then Google it again. Some habits die hard.

This article reflects personal experience and is for informational purposes only — not investment advice. All investment decisions are your own responsibility.