Japan to Raise Tax Break Cap for Dependents’ Earnings to 1.5 Million Yen

TOKYO: The Japanese government, in collaboration with ruling parties, is planning to increase the income threshold for dependent offspring's earnings, enabling householders to qualify for tax deductions. The cap is expected to rise to 1.50 million yen ($9,900) from the current 1.03 million yen, potentially taking effect next year, according to sources familiar with the matter. According to Lao News Agency, this initiative follows the ruling bloc's acceptance of several demands from an opposition party. The Liberal Democratic Party, led by Prime Minister Shigeru Ishiba, is seeking cooperation in parliament after losing its majority in the House of Representatives during October's general election. In a related development, the lower chamber is anticipated to pass a supplementary budget draft for fiscal 2024, valued at 13.9 trillion yen, to fund an inflation relief package supported by the Democratic Party for the People (DPP). Currently, householders with dependents aged 19 to 22 earning over 1.03 million ye n annually are disqualified from receiving a special tax exemption. This threshold is considered a deterrent for part-time workers who might otherwise increase their working hours amid a labor shortage in Japan. Exceeding the earnings cap results in the loss of tax deductions, ultimately reducing household income. The DPP has advocated for raising the tax break ceiling to at least 1.50 million yen by 2025 to enhance disposable income. Meanwhile, the LDP and its junior coalition partner, Komeito, initially proposed a more modest increase to 1.30 million yen starting in 2026, citing concerns about potential declines in tax revenue. Efforts are underway to finalize the DPP's proposal for inclusion in tax reform plans for fiscal 2025, which are expected to be completed by the end of the month. Additionally, the LDP and Komeito, in agreement with the DPP, plan to increase the tax-free income threshold from the current 1.03 million yen to 1.78 million yen next year, addressing concerns that the existing limit dis incentivizes part-time employment. The DPP, which significantly increased its representation in the lower house during the October election by advocating for wage hikes, has agreed to the government's spending plans for the current fiscal year. The extra budget aims to implement an economic package totaling 39 trillion yen, including subsidies to mitigate rising energy costs and cash handouts for low-income households, as consumers continue to face inflationary pressures.