- The four changes in the 2026 year-end adjustment
- How monthly withholding and the December settlement fit together
- Why to check who can newly be claimed as a dependant
- What payroll staff should check before December
Short answer
Under Japan's 2026 tax reform, the year-end adjustment carried out in December 2026 reflects a higher basic deduction, a higher minimum employment income deduction and revised income limits for dependants. A special rule for the life insurance deduction also starts for people with dependants under 23. According to the National Tax Agency (NTA), monthly withholding through November 2026 does not change; in December, the full year's tax is recalculated with the new amounts and the difference is settled.
- January to November: monthly withholding as before
- December: recalculate the year with the new deductions
- Settle the difference
- Newly eligible dependants need a declaration form
The higher basic deduction, the higher minimum employment income deduction and the new income limits for dependants take effect in the December year-end adjustment.
What changes
The main figures below come from the "What changed from last year" section of the NTA's 2026 year-end adjustment guide.
| Item | Before | After (2026 and 2027) |
|---|---|---|
| Basic deduction (total income up to 1.32 million yen) | 950,000 yen | 1.04 million yen |
| Basic deduction (over 1.32 million up to 4.89 million yen) | 880,000 or 680,000 yen | 1.04 million yen |
| Basic deduction (over 4.89 million up to 6.55 million yen) | 630,000 yen | 670,000 yen |
| Basic deduction (over 6.55 million up to 23.5 million yen) | 580,000 yen | 620,000 yen |
| Minimum employment income deduction | 650,000 yen | 740,000 yen |
| Income limit for dependants and spouses in the same household | 580,000 yen or less | 620,000 yen or less |
| Income limit for working students | 850,000 yen or less | 890,000 yen or less |
The basic deduction figures of 1.04 million and 670,000 yen, and the 740,000 yen employment income deduction, include additions that apply only for 2026 and 2027. The NTA table shows separate amounts for 2028 onward (the minimum employment income deduction is 690,000 yen).
Watch for people whose dependant status changes
Converted to salary-only income, the limit for dependants rises from 1.23 million yen to 1.36 million yen a year (the NTA's guide figure for 2026 and 2027; it differs if special deductions apply). For specified relatives the guide range is over 1.36 million up to 1.97 million yen, and for a spouse eligible for the special spouse deduction it is over 1.36 million up to 2.07 million yen.
According to the NTA, to claim a deduction for someone who newly qualifies because of this change, the employee needs to submit the dependants declaration form or similar. Suppose, for example, an employee has a family member earning about 1.3 million yen who could not be claimed last year. Resubmitting the form this year may make them eligible, so mentioning this in the notice to staff helps avoid missed claims.
Special rule for the life insurance deduction
For people with a dependant under 23, the cap on the general life insurance deduction for new-type policies rises from 40,000 to 60,000 yen for 2026 and 2027, with a new calculation formula. The combined cap of 120,000 yen for general, medical and care, and private pension insurance stays the same. When checking insurance deduction forms, also check whether the employee has a dependant under 23.
What to check before December
Check the provider's notice to confirm your payroll software supports the 2026 amounts and tables. The overall flow of the year-end adjustment is covered in the article "Year-end adjustment: the payroll team's work". This article summarizes the NTA materials; for individual decisions, check the NTA materials, the tax office or a tax accountant.
Checklist
- Does the payroll software support the 2026 deduction amounts and tables?
- Is there an employee whose family member earns over 1.23 million up to 1.36 million yen and is not claimed?
- Have you collected dependants declaration forms for newly eligible dependants?
- Have you checked the life insurance deduction for people with dependants under 23?
- Does the notice to staff mention what changed this year?
One thing to check today
In the draft of your year-end adjustment notice to staff, add one line saying the family income guide has changed to 1.36 million yen or less.