Foreign residents working in Japan will see significant changes to their tax obligations following a landmark agreement between Prime Minister Takaichi and Democratic Party for the People leader Yuichiro Tamaki. The deal, announced on December 18, 2025, raises the income tax threshold to ¥1.78 million annually, representing one of the most substantial tax reforms affecting workers in recent years. According to NHK, the agreement centers on revising the so-called "income wall" (年収の壁), a term referring to the income threshold at which tax obligations begin. The new policy raises the tax-free income limit from its current level to ¥1.78 million, meaning workers earning below this amount will pay no income tax. This change directly impacts part-time workers, students with jobs, and those working reduced hours—categories that include many foreign residents in Japan. The reform extends beyond simply raising the basic threshold. NHK reports that the agreement includes enhanced basic deductions for earners making up to ¥6.65 million annually. This additional deduction structure means that even middle-income earners will benefit from reduced tax burdens, though the most dramatic impact will be felt by lower-income workers who may see their tax obligations eliminated entirely. For expats working in Japan, this reform has several practical implications. Those employed part-time or in entry-level positions earning under ¥1.78 million annually will no longer need to file income tax returns or pay income tax, simplifying their financial obligations considerably. This is particularly relevant for English teachers working limited hours, students on part-time work permits, or trailing spouses of primary visa holders who work supplementary jobs. The timing of implementation remains crucial for financial planning. The agreement indicates that these changes will be incorporated into the fiscal year 2026 budget, which typically begins in April. However, expats should monitor official announcements from the National Tax Agency for specific effective dates and any transitional arrangements. It's important to note that this reform affects only national income tax. Residents will still be subject to resident tax (住民税), social insurance contributions, and other statutory deductions. The resident tax threshold typically differs from income tax thresholds, and foreign residents should consult with tax professionals to understand their complete tax picture under the new system. The political context of this agreement also merits attention. NHK reports that the deal between Prime Minister Takaichi and the Democratic Party for the People includes commitments to expedite passage of the fiscal 2026 budget. This suggests strong political momentum behind the reform, increasing the likelihood of smooth implementation. The agreement has even sparked discussions within the Democratic Party for the People about potential future coalition government participation, indicating the reform's political significance. For employers of foreign workers, this change may affect hiring decisions and compensation structures. Companies that previously structured salaries to keep workers below the old tax threshold may need to reconsider their approaches. Foreign residents negotiating employment contracts should factor in these new thresholds when discussing compensation packages. Expats should also be aware that while this reform reduces tax burdens, it may affect other benefits tied to income levels. Some social welfare programs, spousal dependent status, and other benefits are calculated based on annual income, and these thresholds may not automatically adjust to match the new tax threshold. The ¥1.78 million threshold reform represents a significant shift in Japan's approach to taxing lower-income workers. For the foreign community in Japan, it offers tangible financial relief and simplified tax compliance. As implementation details emerge in early 2026, foreign residents should stay informed through official channels and consider consulting tax professionals to maximize the benefits of this historic reform.