TOKYO -- The Japanese government and ruling coalition agreed Tuesday on a plan to revise the tax credit scheme for married couples, raising the income cap to let more couples qualify and assigning different amounts based on how much each spouse makes.
Starting January 2018, primary earners will be able to claim a 380,000 yen ($3,330) deduction if their spouses earn up to 1.5 million yen a year -- up from the current cap of 1.03 million yen. The amount will decrease in nine stages as the secondary earner's income rises from over 1.5 million yen up to 2.01 million yen, after which the couple will no longer qualify.
The scheme will be included in the ruling coalition's fiscal 2017 tax reform outline due out Thursday. The government and coalition originally considered scrapping the spousal deduction entirely, replacing it with a standard tax break for all couples regardless of their income levels. They decided against the idea over concerns of a backlash from stay-at-home husbands and wives.
The government and ruling coalition on Tuesday agreed to the cut-offs for the nine income bands for lower-earning spouses making between 1.5 million yen and 2.01 million yen. The higher earner's income will also factor into calculations for the deduction. The deduction will also fall in three stages if the higher earner makes over 11.2 million yen but not more than 1.22 million yen.
For a couple where one spouse makes 11.2 million yen or less, and the other makes over 1.6 million yen but no more than 1.67 million yen, the former can claim 260,000 yen in credit. If one makes over 11.7 million yen but not over 12.2 million yen, and the other makes over 1.6 million yen but not more than 1.67 million yen, the figure comes to 90,000 yen. The couple will not qualify for any credit if the higher-earning spouse makes over 12.2 million yen or the lower-earning spouse makes more than 2.01 million yen.
The government and the ruling coalition consider these changes as a part of work reforms advocated by Prime Minister Shinzo Abe. Tokyo is currently pushing to raise the minimum wage, which could cause lower-earning spouses to cut down on their number of hours to stay under the 1.03 million yen cap. The idea is to encourage them to work more by raising that ceiling.
At 1,000 yen an hour, a part-timer working six hours a day, five days a week could earn 1.44 million yen. The new 1.5 million yen cap reflects the government's hopes that lower-income spouses will put in more hours than that.
Distributing the burden
The government and ruling coalition hope to make up for the greater deductions to married part-time workers by increasing taxes on households with a high-income earner. A couple where one makes 15 million yen and the other does not work, for example, will see a 158,000 yen increase to their tax bill.
"This marks the first step toward redistributing income, so that high-income households shoulder the weight of measures aimed at increasing the amount of time at work and bolstering the economy," a Ministry of Finance official said. But some high earners feel that they are just being used as an easy target.
The new spousal deduction will not help couples where both work full-time. Without a standard tax break, like the idea scrapped by the government and ruling coalition, single-income households will continue to be treated more favorably under the tax system than double-income ones.
The revised scheme effectively benefits households with one full-time and one part-time worker the most. Secondary earners at full-time positions could take this as a message that they should be working part-time instead.