This is an English translation of our Japanese article. Rules and figures may change; the Japanese version and official sources are authoritative. For individual matters, consult a tax office or a licensed tax accountant (zeirishi).

Medical Expense Deduction Guide for Sole Proprietors

How to add the medical expense deduction to your tax return and save even more

Because sole proprietors file a tax return every year, the extra effort to claim the medical expense deduction is nearly zero. By combining the medical expense deduction with your business-income calculation, you can achieve a triple saving on income tax, residence tax, and National Health Insurance premiums.

Features unique to sole proprietors

You can claim it together with your tax return. Watch for the effect on NHI premiums and the "total income under ¥2 million" rule.

Check first

List of eligible medical costs

Hospitals, medicine, transport, childbirth, dental, nursing care. Also clarifies the difference from business expenses.

Important

Calculating the deduction and tax saving

A simulation of the triple saving on income tax, residence tax, and NHI premiums.

Calculate

Self-Medication Tax System

A special rule usable when over-the-counter drugs exceed ¥12,000. How to choose between this and the regular medical expense deduction.

Special rule

Extra steps in your tax return

Just add the medical expense deduction on top of your annual return. How to use the tally form.

Steps

Common mistakes and cautions

No double-counting with expenses, the effect on NHI premiums, and the special calculation in low-income years.

Caution

Features unique to sole proprietors

When a sole proprietor claims the medical expense deduction, there are three points that differ from an employee. Understanding them correctly lets you maximize the tax-saving effect.

You can claim it together with your tax return

Because sole proprietors file a tax return every year, you can add the medical expense deduction with almost no extra effort. Simply enter the figures in the medical expense tally form and incorporate them into your return.

National Health Insurance premiums also fall

When the medical expense deduction lowers your taxable income, next year's National Health Insurance premiums (income-based portion) fall in step. Employees (Association-managed Health Insurance) do not get this effect.

The threshold changes in years with total income under ¥2 million

If your business income is small and your total income is under ¥2 million, the out-of-pocket threshold is not "¥100,000" but "total income × 5%". In low-income years you may be able to claim even without reaching ¥100,000.

Double-counting with business expenses is absolutely prohibited

Medical costs already recorded as business expenses (such as treatment for a work-related injury) must be excluded from the medical expense deduction. You cannot record the same outlay as both an expense and a deduction.

Formula for the medical expense deduction
Deduction = total annual medical costsreimbursements such as insurance payouts¥100,000 or total income × 5%

※ If total income is under ¥2 million: compare "¥100,000" with "total income × 5%" and use the lower figure.

※ The deduction is capped at ¥2 million.

Example: business income of ¥3 million, a family of 3, ¥280,000 in annual medical costs (no reimbursement)
Annual medical costs (whole family)¥280,000
Out-of-pocket portion (¥100,000)− ¥100,000
Medical expense deduction¥180,000
Income tax saving (rate 20%)¥36,000
Residence tax saving (10%)¥18,000
NHI premium saving (income-based portion approx. 9%)Approx. ¥16,200 cut next year
A total saving of about ¥70,000 across income tax, residence tax, and NHI premiums. The NHI premium saving that employees cannot get is the strength of the sole proprietor.

List of eligible medical costs

For sole proprietors, "what counts as a business expense" and "what counts for the medical expense deduction" are different things. If you visit a clinic for a work-related injury, that cost can be recorded under only one of the two — as an expense or as a deduction (a business expense is usually more advantageous).

Clinic visits, examinations, hospitalization
Eligible
  • Examination and treatment fees (both insured and self-pay care)
  • Hospitalization fees (including meals) and surgery fees
  • Acupuncture and massage (when directed by a doctor)
  • Psychiatry and psychosomatic-medicine treatment fees
Not eligible
  • Cosmetic plastic surgery
  • Health checkups (eligible if an abnormality is found and then treated)
  • Vaccinations (influenza, etc.)
Medicines
Eligible
  • Prescription drugs (dispensing pharmacy)
  • Over-the-counter medicines for treatment (compresses, stomach medicine, fever reducers, etc.)
Not eligible
  • Vitamins, supplements, energy drinks
  • Medicines for prevention or health promotion
Dental treatment
Eligible
  • Cavity treatment and gum-disease treatment
  • Implants (to restore chewing function)
  • Orthodontics for children (when medically necessary)
Not eligible
  • Whitening for cosmetic purposes
  • Adult orthodontics aimed solely at improving appearance
Pregnancy and childbirth
Eligible
  • Prenatal checkup fees, delivery fees, hospitalization fees
  • Infertility treatment and in-vitro fertilization costs
Caution
  • The childbirth and childcare lump-sum grant (¥500,000) is subtracted as a reimbursement
Transport for medical visits
Eligible
  • Train and bus (no receipt needed; a record is enough)
  • Taxi (when public transport cannot be used)
Not eligible
  • Gasoline and parking costs for your own car
Expense vs. medical expense deduction
Cases where an expense is better
  • Treatment for a work injury or occupational illness
  • Health-management costs directly related to the business
  • → Recording as an expense gives a larger tax-saving effect, including NHI premiums
Cases to use the medical expense deduction
  • Private illness or family members' medical costs
  • Treatment whose connection to the business cannot be explained

Calculating the deduction and tax saving

For sole proprietors, in addition to income tax and residence tax, National Health Insurance premiums (income-based portion) are also tied to income, so the tax-saving effect of the medical expense deduction reaches further than it does for employees.

Overview of the triple saving

Income tax
Rate 5–45%
Refunded 3–4 weeks after filing
Residence tax
Rate 10%
Reduced for 12 months from June of the next year
National Health Insurance premiums
Income-based portion approx. 8–11%
Next year's premiums fall (an effect employees do not get)

Tax-saving simulation by business income (for a ¥200,000 deduction)

Approx. business incomeIncome tax rateIncome tax savingResidence tax savingNHI premium saving
(income-based 9% guide)
Total saving
Up to ¥1.95 million5%¥10,000¥20,000¥18,000Approx. ¥48,000
¥1.95–3.3 million10%¥20,000¥20,000¥18,000Approx. ¥58,000
¥3.3–6.95 million20%¥40,000¥20,000¥18,000Approx. ¥78,000
¥6.95–9 million23%¥46,000¥20,000¥18,000Approx. ¥84,000

※ The income-based rate for NHI premiums varies by municipality (roughly 8–11%). Calculate the actual saving using your local government's rate.

When total income is under ¥2 million (the threshold falls below ¥100,000)

Example: business income of ¥1 million (total income ¥1.5 million), ¥120,000 in annual medical costs
Annual medical costs¥120,000
Out-of-pocket portion (¥1.5 million × 5% = ¥75,000)− ¥75,000
Medical expense deduction¥45,000
Income tax saving (rate 5%)¥2,250
Residence tax saving (10%)¥4,500
NHI premium saving (9%)¥4,050
You can claim even in a low-income year without exceeding ¥100,000. It can also be used in a year when your income drops or in your first year of business.

Self-Medication Tax System

This is a special rule you can choose instead of the medical expense deduction. Consider it in a year when you rarely go to a hospital and mostly rely on over-the-counter drugs. You can use only one of the two.

Regular medical expense deduction
Applies from over ¥100,000 (or total income × 5%)
  • Covers a wide range: hospitals, medicine, transport, etc.
  • You can combine the whole family's costs
  • Deduction cap: ¥2 million
  • Has an NHI premium saving effect
Years with high medical costs, or when you value the NHI saving effect
VS
Self-Medication Tax System
Applies from over ¥12,000
  • Only switch OTC medicines are eligible
  • Deduction cap: ¥88,000
  • Requires a health checkup
  • Has the same NHI premium saving effect as the regular deduction
Years with low hospital costs but frequent use of over-the-counter drugs
Typical examples of switch OTC medicines

Items printed with "★Self-Medication Tax System eligible" on the receipt are eligible. Loxonin S, Gaster 10, Allegra FX, Claritin EX, Nicotinell, and Voltaren EX Tape are representative products.

Extra steps in your tax return

Sole proprietors already file a tax return every year. You can claim the medical expense deduction by simply adding the medical expense tally to that return.

1
Gather a year's worth of medical receipts

The simplest approach is to sort them by month into envelopes. Digital storage by scanning or smartphone photo is also valid (compliant with the Electronic Books Preservation Act). Record transport costs for visits with a memo.

2
Check that nothing overlaps with business expenses

If you have recorded work-related treatment costs as expenses in your books, exclude them from the medical expense tally. Recording the same cost in both places is a double filing and creates a tax risk.

3
Enter the figures in the medical expense tally form

In the Excel sheet (medical expense tally form) downloadable from the National Tax Agency site, enter the date, medical institution name, amount, and reimbursement. It can be imported into e-Tax.

4
Reflect it in the "medical expense deduction" field of your return

When preparing the blue-return financial statements and the tax return, import the data into the medical expense deduction field. Because it is included in the same return as your business-income calculation, no additional documents need to be submitted.

After filing: income tax refund, residence tax reduction, NHI premium saving

Income tax is refunded 3–4 weeks after filing. Residence tax is reduced from June of the next year. It is also reflected in the calculation of next year's National Health Insurance premiums.

Common mistakes and cautions

Absolutely prohibited Recording the same medical cost under both "expense" and "medical expense deduction"

If you have recorded treatment costs for a work injury as a business expense in your books, you cannot also include that cost in the medical expense deduction. Be sure to exclude any cost recorded as an expense from the medical expense tally. You must choose which one to deduct it under (generally recording it as an expense is more advantageous, including the NHI premium saving).

Common misunderstanding "In a low-income year I can't reach ¥100,000, so I can't claim"

This is wrong. If total income is under ¥2 million, the out-of-pocket threshold becomes "total income × 5%" (up to ¥100,000). For example, with total income of ¥1 million, the amount over ¥50,000 is deductible. The more your first year of business or a slow business year, the more likely you can claim.

Caution The effect on NHI premiums appears the following year

Even if the medical expense deduction lowers this year's income tax and residence tax, National Health Insurance premiums are reflected in the following year's calculation (because they are computed based on the previous year's income). You will feel the saving from June of the next year onward.

Caution A spouse's medical costs can be combined, but income is filed in one place

The medical costs of family members who share the same household budget can be combined, but they are claimed together on one person's tax return. For a sole proprietor, it is common to include the whole family's costs on your own return (if the spouse is an employee and files separately, decide how to split them).

Good to know You can go back up to 5 years (refund claim)

For a year you forgot to file, you can recover it within 5 years via an amended return or a request for correction. It also works if you forgot to include it in an annual return. As long as you still have the receipts, you can claim even now.

Pre-filing checklist for the sole proprietor's medical expense deduction
  • □ Excluded medical costs recorded as expenses in your books from the tally
  • □ Combined the medical costs of the whole family (relatives sharing the same household budget)
  • □ Subtracted reimbursements (benefits, high-cost medical care) from the corresponding medical costs
  • □ If total income is under ¥2 million, calculated the out-of-pocket threshold as "total income × 5%"
  • □ Recorded transport costs for visits (train, bus) with a memo
  • □ Compared with the Self-Medication Tax System and chose the more advantageous one

Learn more in related columns and pages

FAQ

How does a sole proprietor claim the medical expense deduction?

Enter the medical expense deduction on your business tax return. You can also combine the costs of family members who share the same household budget.

From what amount is it eligible?

If total income is ¥2 million or more, medical costs over ¥100,000 per year are eligible; if under ¥2 million, costs over 5% of income are eligible.

Do NHI premiums also go down?

When the medical expense deduction lowers your taxable income, income tax and residence tax ease (National Health Insurance premiums are calculated separately based on the previous year's income).

Sources / official information

This article is based on the official information below. Rules may be revised. Please check each official site for the latest details.

※ The content of this article is for information purposes and is not tax or legal advice. For individual tax decisions, consult your local tax office or a licensed tax accountant (zeirishi).