Friday, March 02, 2012

Medical Expense Tax Deduction/Refund

In Japan, most direct taxation is handled through your employer. However, regardless of whether you are self employed or work at a big corporation, there are still some deductions/rebates you can claim. One of the big ones is the medical expense deduction (iryouhi kosho 医療費控除). Here is how you claim it.

What It Covers
This is mainly for large medical expenses so its only really useful if you happen to under go a big procedure or need long-term care. This tax exemption is only for necessary care, not elective procedures. Medical costs must be already paid in full at the time of filing. If not yet paid, you must file separately during the next tax year.

All necessary treatment including transportation to and from a medical institution are covered. This only applies to treatments approved for National Health Insurance and various public insurance schemes in Japan. If you get treated overseas, you can only claim for a cost less than or equal to the same treatment here. Necessary prescription drugs are also covered.

Third party payments (compensation for traffic accidents, third party injury, etc.) are not deductible as well as treatments covered by third party private organizations. 

In the case you are claiming medical costs related to a bedridden family member, you need to attach a "proof of diaper usage" (omutsu shiyo shomei-sho おむつ使用証明書) issued by a doctor.

Finally, routine health checks (kenko shindan 健康診断) are not covered as they are usually carried out by your employer. The exception is for health checks necessary for individuals covered under the Physically Handicapped Welfare Law.

What to Bring?
You must file for a medical expense deduction at your local tax office (zeimucho 税務署) which you can find here. Make sure to bring the following:
  • Your withholding slip (gensen choshu-hyo 源泉徴収票) issued at the end of every year by your employer(s). If self employed, simply have an exact pre-tax income figure ready and be prepared to prove it if audited.
  • Your medical receipts (ryoshusho 領収書) complete with the doctor's seal. You must have receipts in order to claim a deduction and many medical institutions will not print you out a second copy, so hold on to your receipts!
  • Receipts from any transportation service you used to get to and from a medical institution.
  •  Your inkan (inkan 印鑑) or personal seal.
 Tax filing time in Japan usually starts around February 15th or 16th and ends mid-March. 

How to Calculate
In order to file for a deduction, you must fill out at tax report form (shinkoku-sho 申告書) with a tax officer. If you have a withholding slip from your company, filling out most of this form shouldn't be too hard (provided you can read Japanese) since your salary, insurance costs, income tax deductions, etc. are all listed. 

There are two basic tax report forms, Type A and Type B. The type of form differs according to the type of income you earn (employment, investments, etc.) but the tax officer will be able to point you to the right one.

The National Tax Agency (kokuzei-cho 国税庁) lists the medical expense deduction calculation for 2011 as follows
  1. Total amount paid-- this includes the total cost of all treatments combining the part born by insurance (hoken futan 保険負担) and out of pocket cost (jiko futan 自己負担).
  2. Total amount paid out by insurance-- the total amount that the insurer paid the medical provider.
  3. Subtract Part 1 from Part 2 (if negative, write 0)
  4. Add your total taxable income (salary, real estate, securities, etc) + retirement income (pension payments, etc.) + income from forestry activities (reported separately)
  5. multiply Part 4 by 0.05
  6. Take the amount in Part 5 or 100,000 yen, which ever is smaller 
  7. Subtract Part 3 from Part 6
  8. You now have your exemption total. If negative, calculate it as 0. 200,000 yen is the maximum allowable deduction. 
If you have an unusually high deduction (what exactly constitutes "unusually high" isn't clear), you may be asked to fill out a more detailed "statement of medical expenses" (iryo-hi no meisai-sho 医療費の明細書) listing each individual service rendered.

Tax law tends to change with the political winds so make sure you double check with the local tax office to make sure your calculations are current.

Lastly, don't forget if you are having issues visiting a doctor, check Access J's article on going to the doctor's office and our going to the dentist in Japan feature. For info on prescriptions and health insurance, look no further.

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1 comment:

  1. I think that the calculation methodology not explained correctly. Step 3 should be 1 minus 2, not 2 minus 1. Step 6 should be 3 minus 4/5, not 4/5 minus 3. Please confirm.