2026 Tax Reform Series – Part 1: Individual Income Tax

Individual Income Tax – Three Important Changes

This week, we look at three important income tax topics included in Japan's 2026 Tax Reform proposals.

Please note: Some of these measures are still proposals and may change before becoming law.

1. Higher Income Thresholds ("Income Wall")

Japan plans to raise several income thresholds that determine when income tax and certain tax benefits apply.

For many employees and part-time workers, this means they may be able to earn more income before facing additional tax consequences.

For employers, it is important to review payroll and withholding procedures once the new rules are finalized.

2. Proposed Tax Changes for Crypto Assets

The government is considering a separate tax system for crypto asset gains.

If adopted, crypto taxation could become more similar to the taxation of stocks and other investment products.

This proposal is still under discussion.

3. Review of the Blue Return Special Deduction

The Blue Return Special Deduction may also be revised.

This deduction is available to eligible self-employed individuals and sole proprietors who maintain proper accounting records.

We will explain this topic in more detail in a future newsletter if the reform is finalized.

Key takeaway

Japan's 2026 income tax reform focuses on:

• higher income thresholds,

• possible changes to crypto taxation,

• and revisions to the Blue Return Special Deduction.

Some measures are still proposals, so we will continue to provide updates as the legislation progresses.