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 firstList of eligible medical costs
Hospitals, medicine, transport, childbirth, dental, nursing care. Also clarifies the difference from business expenses.
ImportantCalculating the deduction and tax saving
A simulation of the triple saving on income tax, residence tax, and NHI premiums.
CalculateSelf-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 ruleExtra steps in your tax return
Just add the medical expense deduction on top of your annual return. How to use the tally form.
StepsCommon mistakes and cautions
No double-counting with expenses, the effect on NHI premiums, and the special calculation in low-income years.
CautionFeatures 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.
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.
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.
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.
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.
※ 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.
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).
- 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
- Cosmetic plastic surgery
- Health checkups (eligible if an abnormality is found and then treated)
- Vaccinations (influenza, etc.)
- Prescription drugs (dispensing pharmacy)
- Over-the-counter medicines for treatment (compresses, stomach medicine, fever reducers, etc.)
- Vitamins, supplements, energy drinks
- Medicines for prevention or health promotion
- Cavity treatment and gum-disease treatment
- Implants (to restore chewing function)
- Orthodontics for children (when medically necessary)
- Whitening for cosmetic purposes
- Adult orthodontics aimed solely at improving appearance
- Prenatal checkup fees, delivery fees, hospitalization fees
- Infertility treatment and in-vitro fertilization costs
- The childbirth and childcare lump-sum grant (¥500,000) is subtracted as a reimbursement
- Train and bus (no receipt needed; a record is enough)
- Taxi (when public transport cannot be used)
- Gasoline and parking costs for your own car
- 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
- 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
Tax-saving simulation by business income (for a ¥200,000 deduction)
| Approx. business income | Income tax rate | Income tax saving | Residence tax saving | NHI premium saving (income-based 9% guide) | Total saving |
|---|---|---|---|---|---|
| Up to ¥1.95 million | 5% | ¥10,000 | ¥20,000 | ¥18,000 | Approx. ¥48,000 |
| ¥1.95–3.3 million | 10% | ¥20,000 | ¥20,000 | ¥18,000 | Approx. ¥58,000 |
| ¥3.3–6.95 million | 20% | ¥40,000 | ¥20,000 | ¥18,000 | Approx. ¥78,000 |
| ¥6.95–9 million | 23% | ¥46,000 | ¥20,000 | ¥18,000 | Approx. ¥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)
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.
- 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
- 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
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.
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.
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.
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.
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.
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
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).
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.
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.
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).
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.
- □ 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.
- National Tax Agency — Tax Answer No.1120 When you have paid medical expenses (medical expense deduction) (in Japanese)
- National Tax Agency — Tax Answer No.1122 Medical expenses eligible for the medical expense deduction (in Japanese)
- National Tax Agency — Tax Answer No.1128 Dental treatment costs eligible for the medical expense deduction (in Japanese)
- Ministry of Health, Labour and Welfare — Self-Medication Tax System (in Japanese)
※ 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).