October Update: Tax and Seasonal Notes
As we enter October, the final quarter of the year is already upon us. Normally this month signals the start of crisp autumn weather, but this year it feels more like summer is only just winding down. After enduring the long heat, let’s take some time to recover while also preparing for the colder months ahead.
Year-End Payroll Adjustments
This year’s year-end adjustment (nenmatsu chōsei) will work a bit differently. For regular payroll runs, employers will continue using last year’s tax rules. The new tax rules will then be applied at year-end when calculating the final income tax liability.
The revised system includes higher deduction amounts, which the government estimates will reduce overall national income tax revenue by about ¥1.204 trillion. In practice, that means more refunds for taxpayers—so employees may see slightly larger refunds than usual this year.
However, keep in mind that local inhabitant taxes (jūminzei) will not fall by as much. The estimated revenue reduction for municipalities is only about ¥75 billion. For example, for a single taxpayer earning around ¥2 million annually, the non-taxable income threshold for national income tax rises sharply from ¥1.03 million to ¥1.6 million, while the resident tax threshold only edges up from ¥1.0 million to ¥1.1 million. As a result, your national tax burden may fall significantly, but next year’s resident tax bill might not change much.
New Dependent Deduction for Students
A new “Special Dependent Deduction” has also been introduced this year, aimed primarily at parents of university and vocational school students who earn part-time income. Previously, if a student earned more than ¥1.03 million, the family would lose the dependent deduction and often face corrective notices from the tax office. Starting in 2025, this threshold increases to ¥1.23 million.
Under the new rule, even if a student’s earnings exceed the old threshold, the dependent deduction can still apply as long as total wages remain under ¥1.88 million. The deduction amount gradually phases down as income rises, from a maximum of ¥630,000 to as little as ¥30,000. A nearly identical “Special Spousal Deduction” exists for married couples.
A Few Reflections on the Reform
- The tax code keeps getting more complex. Even this brief overview is hard to follow, and certain changes—like the increased basic deduction—are temporary, lasting only two years.
- Both the spousal and dependent deductions require knowing the full-year wage total, which can’t be confirmed until year-end. That makes mid-year planning difficult.
- As with the recent flat-rate tax credit, by the time taxpayers actually feel the benefit, the politicians who designed it may already be out of office.
- With a divided parliament, tax reforms will remain a lively issue. Many feel that the system is already too complicated to be practical.
For now, perhaps the best approach is to simply look forward to those larger-than-usual refunds this year!
