Medicare Levy Surcharge

The Medicare Levy Surcharge (MLS) is an Australian Government initiative that encourages Australians to take out hospital cover in order to reduce the demand on the public system.

The surcharge is an additional tax (on top of the 2% Medicare Levy we all have to pay*) that’s levied on to Australian taxpayers who earn above the MLS thresholds and don’t have private hospital cover.

Recent changes to the MLS

The MLS has been in place since 1997 and was applied at a rate of 1% of annual taxable income. In 2012, the government made changes to the MLS. The changes included increasing the MLS surcharge rates and income testing the MLS against new income thresholds.

What are the income thresholds?

The MLS income thresholds for 2014–2015 are:

INCOME THRESHOLDS
NO CHANGE TIER 1 TIER 2 TIER 3
Singles Less than $90,000 $90,001–$105,000 $105,001–$140,000 $140,001+
Couples/ Families Less than $180,000 $180,001–$210,000 $210,001–$280,000 $280,001+

The threshold increases by $1,500 for each dependent child after the first. Single parents and couples with dependent children are also subject to the family thresholds.

What levy will I be charged in 2014–2015 financial year?

This table shows the MLS you’ll be charged by the Government if you, your spouse or your dependent children don’t have hospital cover.

MEDICARE LEVY SURCHARGE
NO CHANGE TIER 1 TIER 2 TIER 3
ALL AGES 0% 1% 1.25% 1.5%
SINGLES $900–$1,050 $1,312–$1,750 $2,100+
COUPLES/ FAMILIES $1,800–$2,100 $2,625–$3,500 $4,200+

How is the levy calculated?

The additional levy is charged on the number of days in the tax year that you haven’t held hospital cover with the appropriate excess. For example, if you take out hospital cover on 1 August 2012, you’ll pay the levy for the 31 days that you didn’t have hospital cover. The following 334 days of the tax year will be exempt from the levy.

Can I avoid the MLS?

If you’re a high income earner you can avoid the MLS (and save on tax) by taking out hospital cover with a hospital excess of:

  • $500 or less for singles, per calendar year
  • $1,000 or less for couples/families, per calendar year

How will having hospital cover help me save money?

If you’re an individual earning $90,000 per year, for example and you don't have hospital cover, the MLS means that you will have to pay an extra $900 in tax (1.0% of your annual income). But with hospital cover available for less than $900 you could walk away with the benefits offered by a hospital only or a hospital and extras policy, avoid paying the tax and still have money left over.

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Which portion of my income will determine my surcharge?

It’ll be determined by your income for MLS purposes. This includes your taxable income, fringe benefits, super contributions minus any net investment losses. If you have a spouse, your combined income will be used. Visit the Australian Taxation Office for a full overview.

What’s the definition of a dependent child?

For calculating your Medicare Levy Surcharge (MLS) a dependent child is:

  • Your child under 21; or
  • Your child who is a full-time student between 21 and 25

Does everyone have to pay the MLS?

You won’t have to pay the MLS if:

  • Your taxable income is below the income threshold
  • Your taxable income is over the income threshold and you have and continue to maintain hospital cover with an excess no greater than $500 for singles or $1,000 for couples/ families. Overseas cover is excluded.
  • You’re normally exempt from the MLS because you’re a prescribed person and you don’t have any dependents
  • You’re a high income earner who had already purchased and continue to maintain hospital cover with an excess greater than $500 for singles or $1,000 for couples/families on or before 24 May 2000

FAQs about the private health insurance rebate

*In some cases people may be exempt from paying the 2% Medicare Levy.

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