Foreign residents in Japan should prepare for significant changes to the country's tax system as the government finalizes its 2025 economic policy package. The proposed reforms address rising living costs through adjustments to commuter allowances, income thresholds, and the introduction of new tax credit mechanisms that will affect both employees and families. According to NHK, the Japanese government has decided to raise the tax-free limit on automobile commuting allowances provided by employers. This change responds directly to rising fuel and transportation costs that have impacted workers nationwide. Currently, commuting allowances are exempt from income tax up to certain distance-based limits, but these thresholds have not kept pace with inflation. The increase will provide relief to employees who drive to work, though specific new amounts have not yet been announced. For expats living in suburban areas or regions with limited public transportation, this adjustment could result in meaningful tax savings. The reform package also addresses Japan's controversial "income walls" (nenkin no kabe), which are income thresholds that trigger higher tax burdens and reduced spousal benefits. These walls, particularly the ¥1.03 million and ¥1.5 million thresholds, have long discouraged part-time workers—many of whom are spouses of full-time employees—from increasing their working hours. The Democratic Party for the People has specifically proposed further raising these thresholds as part of their economic policy recommendations to Prime Minister Takaichi, according to NHK reporting. The annual tax reform debate will examine which deductions should be adjusted and what indicators should guide these changes. For foreign residents with working spouses or those considering part-time employment themselves, any upward adjustment to these income walls could provide greater financial flexibility without triggering disproportionate tax increases or loss of dependent benefits. Perhaps most significantly for lower-income households, the government's draft economic policy includes provisions to begin designing a "refundable tax credit" system (kyūfu-tsuki zeigaku kōjo). Unlike traditional tax deductions that only benefit those with tax liability, refundable tax credits can result in direct payments to households whose credits exceed their tax burden. Prime Minister Takaichi has expressed strong support for implementing this system, which would represent a fundamental shift in Japan's approach to supporting low-income families. The economic package also includes measures to address food price inflation through local government subsidies, with Prime Minister Takaichi even suggesting during Diet questioning that if ¥5 trillion in permanent revenue were available, she would consider reducing the consumption tax rate on food items to zero, according to Livedoor News. While this remains hypothetical, it indicates the government's awareness of how rising food costs affect household budgets. The Liberal Democratic Party has submitted recommendations emphasizing the need to prevent Japan from returning to deflation while ensuring economic structural transformation. These proposals aim to balance immediate relief measures with longer-term economic stability. For expats, these reforms carry practical implications. Those commuting by car should monitor announcements about the new tax-free allowance limits and ensure their employers adjust withholding accordingly. Households with part-time working spouses should watch for changes to income wall thresholds, as these could affect decisions about working hours and household income optimization. The refundable tax credit system, once implemented, may provide additional support for families with children or lower incomes, though design details remain under development. As Japan's tax reform discussions continue through the year-end legislative process, foreign residents should consult with tax professionals familiar with both Japanese tax law and international tax treaties to understand how these changes will affect their specific situations. The final details will emerge as the government finalizes its tax reform proposals for the 2026 fiscal year, which begins in April.