Complete guide to tax deductions in Japan
How income deductions and tax credits differ, and the main ones: basic, spouse, dependent, medical, insurance, iDeCo, donations, mortgage.
An income deduction (所得控除) reduces the income you are taxed on; a tax credit (税額控除) reduces the tax itself — so a ¥300,000 deduction saves roughly your marginal rate times ¥300,000, while a ¥300,000 credit can cut tax by up to ¥300,000.
Effective: 2026-01-01 to 2026-12-31
Professional review pending — treat as draft and confirm with the authorities.
Key points
- Deductions reduce taxable income; credits reduce tax — a deduction is not a refund of its full amount.
- Payroll (year-end adjustment) handles basic, spouse, dependent, social-insurance, and life-insurance deductions.
- Medical expenses, donations beyond one-stop, and the first mortgage year require a tax return.
- The medical threshold is ¥100,000 (or 5% of total income below ¥2M); the deduction is capped at ¥2M.
Deduction vs credit
Income deductions — basic, spouse and spouse-special, dependent, specified-relative, medical, social-insurance, life and earthquake insurance, small-business/iDeCo contributions, donations, disability, and single-parent — subtract from your taxable income. Tax credits, such as the housing-loan credit and dividend credit, subtract from the calculated tax. The distinction decides how much you actually save: a deduction’s value scales with your marginal rate; a credit is a near-direct reduction, subject to its own limits.
The deductions most people use
Employees automatically get the employment-income deduction (at least ¥650,000 from 2025, capped at ¥1.95M) plus the basic deduction, whose 2026 amount depends on total income after reform. The medical deduction equals qualifying costs minus reimbursements minus the ¥100,000 (or 5%) threshold, capped at ¥2M — file a statement and keep receipts five years. iDeCo contributions are deductible; life and earthquake insurance follow statutory caps; and Furusato Nozei donations flow through as a donation deduction plus resident-tax credit.
Who this is for
- Employees and freelancers optimising deductions
- Anyone comparing deduction vs credit
What this is not
- Exact eligibility for your household (varies by income and family)
- 2025–2026 reforms changed the basic, spouse, and specified-relative thresholds; confirm the current-year figures before relying on them.
Frequently asked questions
What is Furusato Nozei and is it worth it?
Furusato Nozei (ふるさと納税) lets you donate to local governments and receive local gifts (food, goods) while deducting almost all of the donation from your resident and income tax — you effectively pay ¥2,000 out of pocket for the gifts. It is worth it for most taxpayers with sufficient income, up to a limit based on your income and family situation. Use the official rules and a limit simulator, and keep the paperwork (One-Stop or tax return) to claim the deduction.
Do I need to file a tax return in Japan?
Many employees do not, because tax is settled by year-end adjustment (年末調整). You generally must file (確定申告) if you have side income over ¥200,000, two or more employers, self-employment income, sizeable investment or crypto gains, or you want to claim deductions like large medical costs or a first-year mortgage credit. Filing season is Feb 16 – Mar 15 via e-Tax. When unsure, check the NTA guidance or ask a 税理士.