A system that allows you to deduct the excess from your income when annual medical expenses exceed a certain amount (generally 100,000 yen). Medical expenses of family members sharing the same household can be combined, and transportation costs for hospital visits and prescription drug costs are also eligible. While a final tax return is required, it provides significant tax savings in years with high medical expenses.
Eligible Expenses and Calculation Method
Medical expense deduction covers medical expenses incurred for treatment purposes. Specifically, this includes hospital consultation and hospitalization fees, prescription drug costs, public transportation fares for hospital visits, dental treatment costs (including non-insurance self-pay treatments), and childbirth expenses. On the other hand, cosmetic surgery, health checkups (when no abnormalities are found), vaccinations, and supplement purchases are not eligible.
The deduction formula is "(annual medical expenses - amounts reimbursed by insurance) - 100,000 yen (or 5% of total income, whichever is lower)," with a maximum deduction of 2 million yen. For example, if annual medical expenses are 300,000 yen and insurance reimbursement is 50,000 yen, the deduction is 300,000 - 50,000 - 100,000 = 150,000 yen. For someone with a 20% income tax rate, this saves 30,000 yen, or 45,000 yen including the 10% resident tax. For those with total income under 2 million yen, the threshold is 5% of total income rather than 100,000 yen, making it easier for part-time workers and pension recipients to qualify even with smaller medical expenses.
Record Management for Reliably Claiming Medical Expense Deductions
Claiming the medical expense deduction requires preparing a medical expense statement. Since the 2017 tax year, receipt submission is no longer required, but there is a 5-year retention obligation. Using the "Medical Expense Notification" received from your health insurance association greatly simplifies statement preparation. However, self-pay treatments and transportation costs not listed on the notification require separate records.
A practical tip is to have the family member with the highest income file for all family members' medical expenses combined, as this maximizes the tax-saving effect. Since income tax is progressive, the person with the higher tax rate benefits more from the deduction. Another strategy is to concentrate dental treatments or health checkups (when abnormalities are found) at year-end to exceed the 100,000 yen threshold. Since this is an either-or choice with the self-medication tax system, you should compare which is more advantageous before deciding your filing method.
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