Important Notes Regarding This Year's Year-End Tax Adjustments

Introduction

Due to the impact of the 2025 tax reform, the income requirements for dependents and other individuals will be raised starting December 1, 2025. Accordingly, please be aware that you may need to get Application for (Change in) Exemption for Dependents of Employment Income Earner forms* from your employees.
* https://www.nta.go.jp/taxes/tetsuzuki/shinsei/annai/gensen/pdf/r08_01_en.pdf

Increase in Income Limits (Ceilings) for Dependents

The Application for (Change in) Exemption for Dependents of Employment Income Earner form must be submitted to the company by employees by the day before they receive their first salary of the year. In practice, this form is typically collected from employees during the previous year's year-end tax adjustment. If there are no changes, resubmission is not required.

For example, for the 2025 tax year, the Application for (Change in) Exemption for Dependents of Employment Income Earner form was likely received from employees during the 2024 tax year’s year-end tax adjustment.

However, during the 2024 tax year’s year-end tax adjustment, the income limits (ceilings) for dependents, etc., raised through the 2025 tax year’s tax reform had not yet taken effect. Therefore, the Application for (Change in) Exemption for Dependents of Employment Income Earner forms received at that time were based on the pre-revision income requirements. Therefore, for the 2025 tax year’s year-end adjustment starting on or after December 1, 2025, when the new requirements take effect, you need to collect new 2025 tax year Application for (Change in) Exemption for Dependents of Employment Income Earner forms from employees who have dependents newly qualifying under the revised requirements.

For example, this applies to cases where a spouse or child was previously excluded from being considered a dependent due to their income level from part-time or temporary work, but now the person does qualify, due to the dependent income requirements criteria having been revised.

Note: Ensure the Date and Reason for the Change are Included

For the 2025 tax year’s year-end tax adjustment, employees who need to resubmit the 2025 tax year Application for (Change in) Exemption for Dependents of Employment Income Earner forms are those who newly meet any of the following criteria ① through ⑤, due to the raised income limits.

Category	Income Limits (Annual Salary Income in Parentheses)
	Before Revision	After Revision
① Dependent relative ② Spouse living in the same household ③ Child sharing a household with a single parent	¥480,000 or less (¥1,030,000 or less)	¥580,000 or less (¥1,230,000 or less)
④ Spouse eligible for the special spousal deduction	¥480,001 to ¥1,330,000 (¥1,030,001 to ¥2,015,999)	¥580,001 to ¥1,330,000 (¥1,230,001 to ¥2,015,999)
⑤ Working Students	¥750,000 or less (Up to ¥1.3 million)	¥850,000 or less (Up to ¥1.5 million)

Practical points to confirm: Before conducting year-end tax adjustments, it is important to inform employees about the details of this change, and have them confirm their family's income situation. In particular, it is advisable to individually approach employees with spouses or children working part-time or as casual workers earning between ¥1.03 million and ¥1.23 million annually, to confirm whether they need to resubmit their Applications.

For example, consider Employee A, who has a child aged 16 and whose estimated total income for the 2025 tax year is ¥550,000. Initially, the child was not listed as a dependent because their income surpassed the pre-revision income ceiling of ¥480,000. However, after the revision, the child’s income now meets the new income requirement of ¥580,000 or less, and they qualify as a dependent. Therefore, Employee A needs to resubmit the Application for (Change in) Exemption for Dependents of Employment Income Earner form.

In the "Date and Reason for Change" section of the resubmitted form, it is necessary to indicate that the employee now has a dependent relative, due to the increase in the income limit, for example, by (for example) writing, "Revision on December 1, 2025."

Taxability of Company Trip Benefits Determined by Overall Judgment

Introduction

Company trips are widely implemented as part of employee welfare programs aimed at employee recreation and camaraderie. How are expenses related to company trips treated for tax purposes? The economic benefit received by employees when a company bears the cost of a company trip is generally not subject to payroll taxation if certain requirements are met.

Tax Treatment of Company Trips

Under tax law, economic benefits received by employees from their company are generally subject to payroll taxation. However, trips recognized as typical employee trips according to social norms are treated as welfare expenses, and are exempt from payroll taxation.

The National Tax Agency (NTA) has outlined the following criteria for determining what is considered generally acceptable:

1. The trip duration is generally limited to 5 days and 4 nights;
2. Participation by at least 50% of all employees;
3. The company's financial burden must be within a reasonable range.

*As a practical guideline, costs up to approximately ¥100,000 per person are generally considered reasonable. For overseas trips exceeding this amount, the excess portion may be subject to payroll taxation.

If these conditions are met, the company bearing the cost of the employee trip generally does not require individual employees to be taxed on the benefit as salary. However, the NTA provides examples showing that even if the participation rate is below 50%, it may still be recognized as not requiring salary taxation.

Case where Non-taxation Applied Even with Just 38% Participation

A Tax Answer published by the National Tax Agency (NTA) cites the following case:

A company held an annual social trip and invited all employees to participate, but only 38% of the total employees attended. The trip lasted four days and three nights, with employees covering part of the cost. The purpose was to foster camaraderie within the company and enhance work motivation, and the trip's content was within the scope generally considered acceptable by social norms.

Regarding this case, the NTA explicitly stated, "When comprehensively considering the trip's purpose, itinerary, scale, cost-sharing ratio, etc., if it is recognized as a typical recreational trip, it is acceptable not to tax it as salary even if the participation rate is below 50%."

In other words, the 50% figure is merely a guideline, not an absolute requirement. Even with lower participation rates, if the company fairly offers opportunities to all employees to participate, and the trip's content is deemed reasonable under social norms as part of employee benefits, its value is not subject to payroll taxation.

Practical Considerations

When organizing employee trips, it is crucial to clearly demonstrate both fairness across the entire company and reasonableness of costs. Maintaining internal records such as invitation documents, participant lists, trip objectives, and cost-sharing details will facilitate explaining the rationale for non-taxable treatment during tax audits.

The NTA's stance may be shifting away from rigidly focusing on the "50% or higher" formal requirement towards emphasizing the actual circumstances. Even with low participation rates, there is ample room to avoid payroll taxation if the trip is positioned as a company-wide welfare benefit, and operated with an awareness of social norms. Conversely, in special cases, such as when executives or the majority of employees are relatives, payroll taxation may still apply even if the above requirements are met.

LDP President Announces Plan for Wage Increase Support Payments

Introduction

Since loss-making companies cannot benefit from the wage increase tax system, the LDP’s President (and Prime Minister) appears to be considering a mechanism that would allow even loss-making companies to benefit by raising wages. While still merely a proposal, it warrants attention.

Limitations of the Wage Increase Promotion Tax System

The government has previously promoted private-sector wage increases primarily through a wage increase promotion tax system, which allows companies to receive deductions from their corporate taxes when they raise employee salaries.

However, this system has a structural problem: since it involves deductions from the corporate tax amount, loss-making companies that are not generating profits have no tax liability to begin with - so cannot receive the deduction.

Given that approximately 70% of Japanese companies are currently operating at a loss, only a limited number of profitable companies can currently benefit from the system. Criticism arose, including from small and medium-sized business associations, that "the system only rewards companies with the financial capacity to raise wages."

PM Takaichi: "Provide Grant-Based Support to Loss-Generating Companies, Too"

Amidst this, LDP President/Prime Minister Takaichi addressed the limitations of the wage hike promotion tax system during a press conference in early October, stating clearly, "There are loss-making companies that cannot utilize the wage hike promotion tax system. It’s necessary to make provisions for such businesses as well." Takaichi indicated she is considering direct support measures, such as grants or subsidies, to provide substantive wage hike support to loss-making companies.

While this proposal has drawn attention as a realistic approach to broaden the base for wage increases, it has also sparked debate over expanding fiscal burdens and ensuring fairness within the system. Discussions appear to have begun also within the ruling party regarding whether such measures should be permanent benefits, or else limited to temporary subsidies.

Challenges in Funding and System Design

We need to remember that this concept remains merely a statement of direction, and has not been finalized as a system. Practical design details, such as the scope of beneficiaries, the definition of wage increase rates, and methods for securing funding, are still undecided. If implemented in earnest, measures through a supplementary budget or a special grant scheme administered by the Small and Medium Enterprise Agency are likely to be considered.

Meanwhile, cautious voices within the government argue that, "the original purpose of encouraging wage increases could be diluted." They point out that grant-based support, potentially paid regardless of corporate performance, could weaken incentive effects and undermine motivation for structural reforms and productivity improvements.

Future Outlook

Prime Minister Takaichi's proposal aims to "ensure wage increases benefit companies of all sizes." Particularly in terms of securing opportunities for wage hikes even for small and micro enterprises struggling to turn a profit, it represents a realistic approach grounded in on-the-ground realities.

The focus now shifts to how the government might institutionalize this policy - particularly its treatment in the year-end supplementary budget and the tax reform outline. If realized, it could emerge as a new model for wage increase support extending beyond the tax system framework. While the political situation remains highly uncertain, wage growth outpacing inflation has become an unavoidable issue for Japan's future development.

We should keep a close eye on the direction the wage increase support payments issue takes.