Japan’s employment income deduction is a standardized amount subtracted from your gross salary before national income tax is calculated. For the 2026 tax year, it ranges from a minimum of ¥650,000 for lower salaries up to a cap of ¥1,950,000 once gross pay exceeds ¥8.5 million. You don’t apply for it. Your employer runs the formula automatically during year-end withholding, using the bracket that matches your annual gross pay.
The 2026 Calculation Brackets
The National Tax Agency sets the deduction as a sliding scale tied to gross annual salary. For 2026, the brackets are:
- ¥1,900,000 or less: flat deduction of ¥650,000
- ¥1,900,001 to ¥3,600,000: salary × 30% + ¥80,000
- ¥3,600,001 to ¥6,600,000: salary × 20% + ¥440,000
- ¥6,600,001 to ¥8,500,000: salary × 10% + ¥1,100,000
- Over ¥8,500,000: capped at ¥1,950,000
The result is subtracted from gross salary to produce “employment income,” which is the figure carried into the rest of the tax calculation.1National Tax Agency. Withholding Tax Guide (2026 Edition)
The percentages shrink as income rises, so the deduction grows in absolute yen but becomes a smaller share of pay at higher brackets. That progressive design is intentional.
A Worked Example
Say you earn ¥5,000,000 in gross salary. That places you in the third bracket, so the deduction is ¥5,000,000 × 20% + ¥440,000, which comes to ¥1,440,000. Your taxable employment income drops to ¥3,560,000. Personal deductions like the basic deduction or dependent deductions are then subtracted from that figure, not from your gross pay.
Who Gets the Deduction
Anyone who receives wages or salary in Japan is eligible. Article 28 of the Income Tax Act defines salary income broadly, so full-time employees, part-time workers, and corporate officers drawing regular compensation all qualify. The formula is the same in every case.
Residency status changes what income Japan taxes, not whether the deduction applies to your salary. You count as a resident if Japan is the base and center of your life, or if you have lived in Japan continuously for one year or more. Residents owe Japanese tax on worldwide income. Non-permanent residents (foreign nationals who have lived in Japan five years or less within the past ten) owe tax on Japan-sourced income plus any foreign income remitted to Japan. Non-residents owe tax only on Japan-sourced income. Whichever category applies to you, the employment income deduction reduces the salary portion.
What Changed for 2026
The National Diet passed the 2025 tax reform bills on March 31, 2026, and the changes took effect for the 2026 tax year. Two things moved:
- The minimum deduction rose from ¥550,000 to ¥650,000.
- The lowest bracket threshold expanded from ¥1,625,000 to ¥1,900,000.
The old formula also included a separate tier for salaries between ¥1,625,001 and ¥1,800,000, calculated at 40% minus ¥100,000. That tier no longer exists.1National Tax Agency. Withholding Tax Guide (2026 Edition)
These numbers reshape what is commonly called the “103-man-yen wall.” Under the old system, combining a ¥550,000 employment income deduction with a ¥480,000 basic deduction meant anyone earning ¥1,030,000 or less owed no income tax. The threshold had not moved in decades and created an incentive for part-time workers to cap their hours just below the line. The reform raised both deductions at once. The basic deduction increased from ¥480,000 to ¥580,000 for most earners, and workers with total income of ¥1,320,000 or less now receive a basic deduction of ¥950,000. Combined with the new ¥650,000 employment income deduction floor, the effective tax-free threshold for the lowest earners rose to ¥1,600,000.
How the Deduction Reaches You
Most salaried workers in Japan never file a tax return. Employers handle everything through the year-end adjustment (nenmatsu chosei), which reconciles the tax withheld from each paycheck against your actual annual liability, then refunds or collects the difference with the December salary payment. Reconciliation documents and the withholding tax summary must reach the tax office by January 31 of the following year.
Your employer will ask you to complete several forms in November or December. The most common is the Application for (Change in) Exemption for Dependents of Employment Income Earner, which covers your personal details and any qualifying dependents. It requires your My Number and the My Numbers of any dependents you claim.2National Tax Agency. Application for (Change in) Exemption for Dependents of Employment Income Earner Separate forms exist for insurance premium deductions and spousal deduction claims. Your employer uses your total annual salary, including bonuses, to determine which bracket applies.
After the adjustment, your employer issues a withholding tax certificate (gensen choshu hyo). This one-page document shows total salary, total tax withheld, and the employment income deduction applied. Keep it. You will need it for loan applications, visa renewals, and as a starting point if you ever have to file an individual return.
When You File Your Own Return Instead
Some situations disqualify you from the year-end adjustment or require a separate filing (kakutei shinkoku):
- Salary exceeding ¥20,000,000, which automatically removes you from year-end adjustment.
- Salary from two or more employers during the year that cannot be consolidated through one year-end adjustment.
- Side income (freelance work, rental income, investment gains) totaling more than ¥200,000.
- Deductions your employer cannot process, such as the medical expense deduction.
The individual filing window runs from February 16 through March 15 each year. You can file through the NTA’s e-Tax portal or in person at your local tax office. The employment income deduction is already computed on your withholding certificate, so you carry that figure onto the return rather than recalculating it yourself.3National Tax Agency. Overview of Deduction for Employment Income