Tax Refund on Medical Expenses — Your Complete Guide

Who Is This Guide For?

If you're a self-employed professional, a exempt business owner or licensed business owner, a company shareholder, or even an employee who covers medical expenses from your salary — this guide is for you. One important point that's often unclear: medical expenses you've paid out of pocket yourself (not through insurance or a health fund) may be deductible from income tax under certain conditions.

We see many clients who discover years later that they were entitled to deduct these expenses. Some attempt to file an amended return request, while others simply miss the opportunity. Our goal here is to ensure you know exactly what's permitted, what's not, and how to do it in a way the tax authority will accept without issue.

In short, this guide will help you understand the rules, identify expenses you can deduct, and avoid mistakes that could trigger an audit. If your situation is more complex — for example, if you hold a company or have significant medical expenses — it's worthwhile to consult with a certified public accountant early on, not after you've already filed.

What Are Medical Expenses for Tax Purposes — and Who Is This Relevant To?

Medical expenses, for the purposes of income tax in Israel, are payments made for medical treatment, medications, tests, surgeries, and similar treatments. However — and this is important — not every medical expense is deductible. The Tax Authority limits deductions to certain conditions.

Essentially, the general rule is this: if you paid money out of your own pocket (not through social insurance, not through a health fund that paid on your behalf), the expense may be deductible — but only if it is for medical treatment or medication approved by the Tax Authority or your treating physician. This does not include vitamins, nutritional supplements, or alternative treatments that the Tax Authority does not recognize.

Target audience: self-employed individuals (exempt and licensed), business owners, employees who pay for medical expenses beyond what their health fund covers, and self-employed professionals in any field. New immigrants who are required to file tax reports in Israel can also use this right.

How Medical Expense Deductions Work — Step by Step

The process of deducting medical expenses depends on the type of entity you are — self-employed, a company, or an employee. Let's go through each one:

1. Document and Receipt Collection: Keep all receipts, invoices, and payment vouchers from your physician, hospital, or gym (if it is a specific treatment). The receipt must contain the name of the treatment, the date, and the name of the service provider. If you paid by credit card or bank transfer, this helps with documentation.
2. Expense Classification: Determine which expenses you want to deduct. Expenses that are generally deductible include: medical tests, surgeries, prescription medications, dental treatment, glasses and contact lenses (under certain conditions), physiotherapy treatments, and similar treatments approved by a physician.
3. Bookkeeping Documentation: If you are self-employed or a business owner, record the expenses in your accounting books or accounting system. Each expense should be documented with the date, amount, name of the service provider, and type of treatment.
4. Reporting in the annual report: In your annual tax report (or company annual report), report the total annual medical expenses. For self-employed individuals, this typically appears in the permitted expenses section. For employees submitting a refund request, attach the expenses to your refund form.
5. Keep Receipts for at Least 3 Years: The Tax Authority may request to see the original receipts. It is recommended to keep them for at least 3–4 years, so you can prove the expenses if there is an audit.

What You Need to Know About Tax and Reporting Medical Expenses

Deducting medical expenses is not automatic. The Tax Authority distinguishes between types of expenses, and some are not deductible at all. Here are the basic rules:

Deductible expenses: Medical treatments from a licensed physician, prescription medications, blood tests and imaging, surgeries, hospitalization in a private hospital, dental treatment (under certain conditions), eyeglasses and contact lenses (if medically necessary), physiotherapy treatment, psychological treatment (under certain conditions).

Non-deductible expenses: Vitamins and nutritional supplements (unless classified as medication under law), alternative treatments not recognized by the Tax Authority, beauty or cosmetic treatments (even if they have a medical aspect), gym memberships (generally), membership fees for private health funds.

Another important point: If you paid for a treatment covered by your health fund (even if you chose to pay out of pocket), you generally cannot deduct the expense. The Tax Authority considers this your choice not to use your insurance coverage.

Regarding reporting: If you are self-employed or a business owner, expenses are reported in your annual tax return as part of permitted expenses. If you are an employee, you may file a request for a tax refund if your total medical expenses exceed a certain amount (generally, the Tax Authority requires that medical expenses exceed a certain percentage of your income for it to be worthwhile to file a request).

Common Mistakes — And How to Avoid Them

In our work with clients, we see the same mistakes over and over again. Here are the most common ones:

• Deducting non-deductible expenses: People try to deduct vitamins, spa treatments, or gym memberships, and it simply doesn't work. The tax authority rejects it upon examination. Always check with a CPA whether a specific expense is deductible before you report it.
• Failure to keep receipts: You spent money on treatment, but you don't have a receipt. Without evidence, the tax authority will not accept the deduction. Always ask for a receipt, even if it's small.
• Reporting without documentation in the books: Some business owners try to report medical expenses in the annual report, but they are not recorded in their accounting books. This causes a discrepancy, and the tax authority notices it quickly.
• Deducting expenses covered by insurance: If your health fund covered part of the treatment, you cannot deduct the covered portion. Only deduct the portion you paid out of pocket.
• Family expenses reported as business expenses: If you paid for medical treatment for a family member, it is not your business expense. It is their personal expense. Each person should report their own expenses.
• Failure to separate by year: Medical expenses should be reported in the tax year in which they were incurred. If you paid in January 2025 for treatment that occurred in December 2024, it belongs to 2024. Confusion about this can trigger an examination.

When Should You Consult an Accountant?

If you believe your medical expenses may affect your taxes, it's time to speak with someone who knows. Here are the situations where it's especially worthwhile:

You are a self-employed professional or business owner: If you have spent a substantial amount on medical treatments, it is advisable to consult before filing your annual report. An accountant will help you identify which expenses are deductible and which are not, and will ensure they are properly documented in your records.

You are an employee who has incurred significant medical expenses: If your total medical expenses are high (for example, expensive dental treatment, surgery, or other medical treatments), you may be eligible to file a tax refund request. An accountant can calculate whether it is worthwhile and help you submit the request correctly.

You have variable income: If your income varies from year to year (for example, self-employed individuals or business owners), calculating the impact of medical expenses can be more complex. It is advisable to speak with someone who understands all the details of your situation.

You are planning to file an amendment request: If you missed medical expenses in previous years, you can attempt to file an amendment request. This is a process that requires good documentation and legal advice, and an accountant can assist you.

Comparison Table — Types of Medical Expenses and Deductions

Here is a table to help you quickly understand which expenses are deductible:

Remember: This table is a general guide. Each case may be different, and a certain expense may be deductible under some circumstances but not others. If you are unsure — consult a CPA.