Foreign residents working in Japan may soon see changes to the country's income tax thresholds as ruling coalition parties negotiate reforms to the so-called "income wall" system. The Liberal Democratic Party (LDP) and the Democratic Party for the People (DPP) are currently in discussions about raising the basic income deduction threshold to 1.78 million yen, though disagreements over which income groups should benefit remain a key sticking point. According to NHK, the two parties confirmed on December 12 their commitment to pursue the 1.78 million yen threshold increase based on last year's agreement. Currently, Japanese workers face various income thresholds that trigger higher tax obligations and affect spousal deductions, creating what policymakers call "income walls" that discourage people from earning beyond certain amounts. The most commonly discussed threshold is 1.03 million yen, above which income tax applies and spousal tax deductions begin to phase out. The negotiations reveal fundamental differences in approach between the coalition partners. The LDP wants to focus tax relief primarily on lower-income earners, while the DPP advocates for extending benefits to middle-income workers as well. This disagreement centers on which income brackets should qualify for the increased threshold and how the reform should be implemented. Prime Minister Takaichi addressed the ongoing discussions during parliamentary budget committee proceedings on December 12, stating that negotiations have reached the stage of finalizing specific implementation methods and determining which income groups will be covered. She emphasized the need to resolve these details as the government works toward finalizing its tax reform outline. In a separate meeting with Onodera, chairman of the LDP's Tax Commission, Prime Minister Takaichi received updates on the negotiation status with the DPP and instructed party leaders to approach the discussions with sincerity as they work toward completing the tax reform framework, according to NHK reporting. For foreign residents working in Japan, these reforms could have significant practical implications. Many expats, particularly those working part-time or in dual-income households, structure their earnings around current tax thresholds to minimize their tax burden and maximize household income. The 1.03 million yen threshold particularly affects spouses of working professionals who limit their hours to avoid triggering higher taxes and losing dependent deductions for their partners. Raising the threshold to 1.78 million yen would allow workers to earn substantially more before facing income tax obligations—an increase of approximately 750,000 yen in tax-free earnings. This change could especially benefit foreign residents working in part-time positions, language instruction, freelancing, or those supplementing household income while maintaining dependent status. However, the current disagreement over which income groups should benefit means the final policy may include income caps or phase-outs that limit who can take advantage of the higher threshold. The LDP's focus on lower-income earners suggests the reform might exclude higher-earning households, though specific income boundaries have not been publicly disclosed. The negotiations come as Japan faces pressure to address labor shortages and encourage greater workforce participation, particularly among women and part-time workers who currently limit their hours due to tax considerations. Foreign residents comprise a growing portion of Japan's workforce, making these tax reforms relevant to the expat community. As discussions continue, foreign residents should monitor developments closely, as any changes would likely take effect in the next fiscal year beginning April 2026. The final tax reform outline is expected to be released later this month, providing clarity on implementation timelines and eligibility criteria. Expats currently structuring their income around existing thresholds may need to reassess their financial planning once the reforms are finalized and specific income brackets are determined.