"A tax cut doesn't reach people who pay no tax." The refundable tax credit is designed to solve this problem. It is a mechanism that tops up the portion that cannot be offset by a tax cut with a cash benefit, and the government and the ruling and opposition parties are now advancing its design in a consultative body. As of July 2026, the leading proposal is "a benefit only at first — ¥40,000 per person." In this article, after organizing the mechanism and the latest state of the consultations, we made it possible to simulate on the spot, by annual income, "how much you would receive and whether anyone loses out."
・On the method, "tax credit" is shelved for now, and there is agreement to start ahead with a benefit only
・The leading benefit amount is ¥40,000 per person. The target is the low-to-middle income bracket of people who work and earn income (including part-timers and casual workers near the income wall)
・On the schedule, the assumption is an income-linked benefit introduced ahead in FY2027 → full introduction in FY2029. As a bridge, it is being discussed as a set with a proposal to cut the consumption tax on food to 1% for two years from April 2027
What is a refundable tax credit? A hybrid of "tax cut + benefit"
A conventional tax cut (tax credit) cannot deduct more than the tax you are paying. For example, even with a ¥100,000 tax cut, a person who pays only ¥30,000 of income tax benefits only up to ¥30,000. To a person with zero income tax (someone on a low income, a pensioner, and so on), not a single yen reaches.
A refundable tax credit provides this "portion that cannot be offset" as cash. With a ¥100,000 tax credit, a person with ¥30,000 of tax gets "a ¥30,000 tax cut + a ¥70,000 benefit," and a person with zero tax gets "a ¥100,000 benefit." It is a system that turns around the weakness of the conventional tax cut — that the lower your income, the thinner the benefit.
| Original tax amount | Conventional tax cut (¥100,000) | Refundable tax credit (¥100,000) |
|---|---|---|
| Person with ¥150,000 | ▲¥100,000 (full amount) | ▲¥100,000 (tax cut only, the same) |
| Person with ¥30,000 | Up to ▲¥30,000 | ¥30,000 tax cut + ¥70,000 benefit |
| Person with ¥0 | No benefit | ¥100,000 benefit |
The mechanism used in the 2024 fixed-amount tax cut (¥40,000 per person), which handed out an adjustment benefit to "people who could not fully offset it," is in substance a forerunner of this idea. Abroad, the United States' EITC (Earned Income Tax Credit) and Canada's GST credit are well known, and the mainstream use is to design them so the benefit grows the more you work, raising the will to work.
What is being settled now, and what is undecided
| Item | Direction of consultation (as of July 2026) |
|---|---|
| Method | The tax credit is shelved for now, and there is agreement to go ahead with a "benefit only" |
| Amount | ¥40,000 per person is the leading proposal |
| Target | The low-to-middle income bracket of people who work and earn income (on an individual basis; single people are also covered). Includes people who hold back on working because of the income wall (around ¥1.06 million / ¥1.30 million). The treatment of pensioners and the like is under consultation |
| Income linkage | Heading toward a "phase-out" design in which the benefit shrinks as income rises. From what income it starts to shrink and where it reaches zero are undecided |
| Timing | An advance benefit in FY2027 → full introduction in FY2029 is assumed. As a bridge, a proposal to cut the consumption tax on food to 1% for two years from April 2027 |
| Funding source | Private estimates put it on the order of ¥5 trillion a year. How to secure it is undecided (the biggest point of contention) |
Source: materials of the government and ruling/opposition parties' "National Council on the Refundable Tax Credit and Related Matters"[Cabinet Secretariat (in Japanese)] and various news reports. The interim summary that had been planned for June 2026 slipped to July or later, and on July 10 the four parties (LDP, Ishin, DPP, and the Centrist Reform Coalition) confirmed a resumption of consultations.
[Simulator] By annual income, how much would you receive? Does anyone lose out?
You can estimate with two models. Model 1 is based on the proposal under consultation (benefit only, ¥40,000), and Model 2 is a fiscally neutral replacement estimate of "if it were designed with the funding included," which produces a minus for some income levels.
The system is under design consultation, and the official amount, phase-out line, and target are not decided. Model 1's phase-out line (starting to shrink from ¥4 million of salary income and reaching zero at ¥6 million) is a placeholder set by this site. Model 2 calculates a fiscally neutral design example that has been discussed among researchers — "abolish the basic deduction for income tax and residence tax and replace it with a refundable tax credit of ¥100,000 per person" — on a rough basis of a single person, salary income only, and social insurance premiums of 15%. It differs from the actual system.
Why "people who lose out" appear in Model 2
The benefit-only proposal (Model 1) is a plus for those who receive it and zero for those outside the target, so no one goes directly into the minus. However, a funding source on the order of ¥5 trillion a year must be procured from somewhere, and it is pointed out that a weakness of the current consultations is that the benefit goes ahead while "whose burden it is" remains undecided.
This is where a fiscally neutral design like Model 2 is instructive. If you abolish the basic deduction that works for everyone (¥580,000 for income tax, ¥430,000 for residence tax) and replace it with a uniform refundable tax credit, the high-income bracket, which benefited greatly from the deduction, sees an increased burden, and the low-income bracket, which benefited little, ends up receiving more than it pays. Because an income deduction is a mechanism where the higher your tax rate the more you gain, changing it to "the same amount for everyone" is itself income redistribution.
In the replacement estimate of ¥100,000 per person, the gain and loss reverse around ¥5.5 million of annual income. A person with very little income gets +¥100,000; at ¥1 million of income, about +¥70,000; at ¥3 million, about +¥30,000; at ¥8 million, about −¥60,000; and at ¥20 million, about −¥140,000. "Where to set the break-even point" can be moved depending on how the benefit amount is set.
Points to work out before it is realized
- How to grasp income accurately: A phase-out of the benefit requires income information. Using the prior year's income delivers late to "people in trouble right now," so rapid income capture via the My Number system becomes a precondition.
- Funding source: On the order of ¥5 trillion a year in private estimates. The debate over government bonds, or a reorganization of other deductions and benefits, or a tax increase is effectively still to come.
- Overlap with existing systems: Because the roles overlap with benefits for residence-tax-exempt households, the child allowance, and income-wall measures, a reorganization of the systems is needed.
- Work incentive: Whether it is designed like the U.S. EITC to "grow the more you work," or as a simple income-linked benefit, changes the effect on how people work.
The relationship with the income wall is explained in The ¥1.06 million and ¥1.30 million walls, and current support for tax-exempt households in Conditions for a residence-tax-exempt household. For the whole picture of where tax is collected and where it is spent, see also Tax revenue data.
FAQ
When will the refundable tax credit start?
Undecided. In the consultations as of July 2026, the central proposal is to introduce an income-linked benefit ahead in FY2027 and aim for full introduction in FY2029. As a bridge, a proposal to cut the consumption tax on food to 1% for two years from April 2027 is being discussed as a set. An official decision comes after the interim summary and the passage of legislation.
How much am I expected to receive?
A benefit of ¥40,000 per person is the leading proposal. The target is the low-to-middle income bracket of people who work and earn income, and a "phase-out" design in which the benefit shrinks as income rises is being considered, but from what income and by how much it shrinks is undecided.
How does it differ from the fixed-amount tax cut?
The 2024 fixed-amount tax cut was basically a method of deducting from tax, and for people who could not fully offset it, a separate adjustment benefit was handed out. The refundable tax credit makes this "integration of tax cut and benefit" a permanent system, and it differs in that the same amount reaches even people who pay no tax from the outset.
Does anyone lose out?
Under the "benefit only" proposal being consulted on, no one directly loses out, but who bears the funding source on the order of ¥5 trillion a year is undecided. If it were designed as a fiscally neutral type, such as a replacement of the basic deduction, the estimate shows that beyond around ¥5.5 million of annual income the high-income bracket faces an increased burden (about ¥140,000 a year at ¥20 million of annual income).
Can pensioners and full-time homemakers also receive it?
Under consultation. The current proposal centers on the "low-to-middle income bracket of people who work and earn income," and the treatment of pensioners and recipients of survivors' pensions and disability pensions continues to be treated as a matter for consideration.
Source: Cabinet Secretariat, National Council on the Refundable Tax Credit and Related Matters (distributed materials) (in Japanese) / The Nikkei, "Refundable tax credit: government and ruling/opposition parties form a national council, aiming to design it during 2026" (in Japanese) and various news reports (as of July 2026). The simulation in this article is an estimation model from before the system is finalized, and differs from the actual system content and amounts. For decisions on individual tax matters, please confirm with a tax office or a tax accountant.