Some changes to the “1,030,000 yen barrier.” Ultimate Checklist for “Never Lose Money” in this Year’s Complicated Year-End Adjustment

If you leave the year-end adjustment to the company, you will lose money!

Is it true that my take-home pay will increase? How much can I work until the end of the year? The issue of the “1,030,000 yen barrier” has been making headlines every day. While the debate continues to focus on the issue, did you know that the year-end adjustment for Reiwa 2025, which is directly related to our finances, has become more complicated than ever before?

This year’s adjustment is more complicated than ever, with many revisions, including an increase in the basic exemption for income tax and a relaxation of the requirements for the deduction for dependents.

Be careful if you think that the company will take care of it for you. While a lighter tax burden is welcome, beware of the fact that you will not be able to receive deductions unless you file your own tax return. To “avoid losing money,” let’s check now with the “Ultimate Checklist” to see in which cases you are required to file a tax return.

Will the revision of the “1.03 million yen barrier” increase your take-home pay? A Review of the Four Major Tax Changes Effective from Reiwa 2025

The following are the four major changes in the tax reform of Reiwa 2025 that will have a direct impact on year-end adjustments.

• 1. Increase in the amount of the “basic income tax credit basic tax credit” for income tax
• 2. 2_The minimum guaranteed amount of “employment income deduction” will be increased.
• 3___ Raise the minimum amount of the “payroll deduction” for income tax purposes 3_Establishment of “Special Special Deduction for Specified Relatives
• 4. 4_Easing of income requirements for 4_Easing of income requirements, such as exemption for dependents, etc.

◇1 1__ Income Tax 1__ Increase in the “basic deduction” for income tax

The “basic deduction” is a deduction (income tax credit) that is deducted from taxable income when calculating the amount of income tax and inhabitant tax, based on the principle that the minimum income necessary for living is not taxed.

Under the current revision, the basic deduction for “income tax” has been increased (the basic deduction for “inhabitant tax” remains unchanged) for taxpayers whose total income is 23.5 million yen or less (25.45 million yen or less if the taxpayer’s income is salary only).

In the year-end adjustment in Reiwa 2025, the amount of tax for the year is calculated based on the revised basic exemption amount and reconciled with the amount of tax withheld from the salary based on the withholding tax table before the revision. If there is any overcollected income tax, it will be refunded at the time of payroll payment in December or January of the following year.

◇2_ “Payroll Tax Deduction Increase in the minimum guaranteed amount of “employment income deduction

The “employment income deduction” is a deduction (income tax credit) for salaried workers (salaried workers, civil servants, part-time workers, etc.) that is deducted from employment income as a “deemed expense”.

In the recent revision, the minimum amount of such deduction was raised from ¥550,000 to ¥650,000.

This increase eases the annual income requirements for relatives and spouses with employment income to be eligible for the deduction for dependents, etc. For example, the annual income requirement for a spouse to be eligible for the deduction for dependents is reduced to 1,030,000 yen.

For example, the income requirement for relatives eligible for the deduction for dependents (i.e., dependents) was, until 2012, 480,000 yen or less on a total income basis, and if the income was salary only, the annual income was 1,030,000 yen or less (480,000 yen + 550,000 yen of employment income deduction = 1,030,000 yen). This is the so-called “1,030,000 yen barrier.

With the recent revision, the total income requirement for dependents was also raised from 480,000 yen or less to 580,000 yen or less. As a result, if a person’s only income is salary, he or she can be considered a dependent as long as his or her annual income is less than 1,230,000 yen (580,000 yen + 650,000 yen of employment income deduction = 1,230,000 yen) and can receive the deduction.

If you have a relative who makes a living (bears living expenses) and the relative’s income is only salary and annual income is 1.2 million yen, for ’24, the annual income was over 1.03 million yen, so he/she was not eligible for the deduction for dependents.’ From the 25th year, he is newly eligible for the deduction for dependents because he meets the requirement of 1,230,000 yen or less.

◇3_Establishment of “Specific 3_Establishment of “Special Exemption for Specified Relatives

The “Special Exemption for Specified Relatives” is a system newly established by the recent revision of the tax law, mainly for the purpose of reducing the number of college students who work less. Under this system, even if a relative between the ages of 19 and 23 (e.g., a college student’s child) exceeds the income threshold for the deduction for dependents, the deduction is not suddenly reduced to zero, and the parent can continue to receive the deduction up to a certain amount.

Specified relatives are relatives* who are between 19 and 23 years old (age as of December 31 of the year) and whose annual total income is between 580,000 yen and 1,230,000 yen (between 1,230,000 yen and 1,880,000 yen if the income is salary only) who share the same livelihood with the taxpayer him/herself (including foster children, spouses and blue business full-time employees). (*Including foster children, excluding spouses, persons who receive salary as full-time employees of blue businesses, and full-time employees of white businesses).

The deduction is the same amount as the exemption for dependents (specified dependents) until the total income is less than 850,000 yen (less than 1.5 million yen if the income is only salary), and thereafter the amount is reduced in stages until it exceeds 1.23 million yen (1.88 million yen if the income is only salary).

Those who have working relatives (e.g., children of college students) who exceed the income requirements for the deduction for dependents will be eligible for a new deduction starting in ’25, as long as the total income of such relatives is less than 1.23 million yen (less than 1.88 million yen if the income is from salary only).

To apply for the special deduction for specified relatives, the applicant must submit a “Application for Special Deduction for Specified Relatives” to his/her employer, indicating the name, date of birth, my number, estimated income for the year, and the amount of special deduction for specified relatives.

Since the amount of deduction changes depending on the amount of income of the specified relative, parents with college-age children need to grasp their children’s income more accurately than before.

◇4_Relaxation of income requirements such as exemption for dependents 4_Relaxation of income requirements such as deduction for dependents

Along with the revision of the basic exemption, income requirements for relatives and spouses eligible for the deduction for dependents have been eased.

Under the amendment, the income requirement to qualify for the deduction will be increased by ¥100,000 for each of the following. In the case of salaried workers, the increase in the income requirement together with the increase in the minimum guaranteed amount of the deduction for employment income is 200,000 yen. This amendment is effective from December 1, 2013, so if you have a relative who is newly eligible for the deduction, the amount of the deduction will increase from the 2013 tax year.

In order to receive the deduction, you must file your own tax return… The newly established “special deduction for specified relatives” and other points to file that you may lose if you forget to write them down.

In order to receive deductions through year-end adjustments, you must report the information necessary for deductions to your employer. Since there are cases newly eligible for deductions due to tax system revisions in fiscal 2013, please check the changes carefully to avoid omissions in your tax return.

Year-end adjustment Documents required for year-end adjustment

The following two (A and B) or three (A, B, and C *if there were any changes in dependents during the year) must be submitted by all taxpayers for the year-end adjustment for the year Reiwa 2025.

• (A) “Application for Basic Deduction for Salaried Workers, Application for Spousal Deduction for Salaried Workers, Application for Special Deduction for Specified Relatives of Salaried Workers, and Application for Deduction for Adjustment of Income” for the year 2025
• (B) “Application for (Change in) Exemption for Dependents for employment income earner” for the year 2026
• (C) “Application for (Change in) Exemption for Dependents for employment income earner” for Reiwa 2025 ( *Already submitted; revise and resubmit as necessary )

In the current revision, income requirements such as exemption for dependents have been relaxed. As a result, if you have more dependents, or if they become eligible for the exemption, you willneed to add them to the “Application for (Change in) Exemption for Dependents for Employment Income earner” (hereafter, “Application for Exemption for Dependents”) for the year 2025 (Reiwa) and resubmit it.

The “Application for Special Deduction for Specified Relatives of Employment Income earner” (“Application for Special Deduction for Specified Relatives of Employment Income earner”) is a new form added from this year-end adjustment due to the establishment of “special deduction for specified relatives”.

The “Application for Basic Deduction for Salaried Workers” (hereinafter referred to as “Application for Basic Deduction”) has also been partially changed due to the increase in the amount of basic deductions.

Checklist (1): Dependents can now be supported up to an annual income of 1,230,000 yen! One-shot check of those who became “eligible for deductions” under the recent revision.

Due to the relaxation of income requirements and the establishment of new systems, the following deductions have expanded their eligibility. Check the checklist to see if you are eligible for any of the new deductions and file your tax return without omission.

Points to keep in mind when preparing your tax return

Calculation of estimated income Calculation of estimated income

The documents to be submitted for year-end adjustment must be submitted before receiving the December salary. Therefore, the income to be entered (total income) is not a fixed amount, but an “estimated amount. The entry of income is a point of confusion for many people, so it is important to understand the correctness of the information.

The estimated amount of employment income is calculated by first adding the “estimated amount” of salary or bonus to the “total amount” of salary or bonus received from January to the time of submission. The estimated amount can be roughly estimated by referring to the previous year’s withholding tax statement and the most recent pay stub, and taking into account the current year’s situation and other factors.

The “total amount paid” is the amount before taxes and social insurance premiums are deducted, and is the amount shown as “amount paid” on the pay stub or withholding tax statement. It includes overtime pay (overtime allowance), family allowance, dependent care allowance, housing allowance, qualification allowance, etc., and does not include tax-exempt commuting allowance (transportation expenses). If you receive salaries from more than one employer, the total amount should be used as the amount of income.

After determining the amount of salary income, apply the following calculation table to determine the amount of “employment income.

If you have income other than employment income, add the total amount of such income (income – expenses) to the amount of employment income to arrive at the estimated total income.

Checklist 2] No More Troublesome Writing!　 Conditions for using “simplified tax return” starting from this year’s year-end adjustment

In the year-end adjustment for the year 2000 (’25), a Declaration of Exemption for Dependents for the year 2026 (’26), which will be required for next year’s withholding tax, must be submitted.

For the Application for Exemption for Dependents to be submitted on or after January 1, Reiwa 2025, a ” simplified form ” can be submitted if there is no change from the information on the Application for Exemption for Dependents that was submitted to the employer in the previous year.

When a simplified form can be submitted, the taxpayer only needs to write the taxpayer’s “name, my number, address and residence” and a statement in the margin that there has been no change (e.g., no change from the previous year) on the Application for Exemption for Dependents. If the return is for a simplified return, check the “None” box in the “Changes from previous year’s return” column.

If none of the following 《not applicable》, you are allowed to submit a simplified tax return under the direction of your employer.

In principle, a simplified tax return can be used only in cases where there is no change at all in the information provided. However, changes in the estimated amount of income are allowed “to the extent that there is no change in the status of dependents.

For example, if the estimated income of a child is 400,000 yen in 2013 and 500,000 yen in 2014, both are within the income requirement for dependents (580,000 yen or less), so if there are no other changes, a simplified form can be used.

Year-end adjustments may be troublesome, but they are less time-consuming than filing your own tax return. To ensure that you receive the deductions for which you are eligible, it is important to understand what deductions are available and the requirements for them.