The Medicare Levy Surcharge is a 1% to 1.5% tax that you have to pay if your annual income is over $90,000 as a single or $180,000 as a couple or family, and you’re not currently covered by a registered private health insurance policy. It’s designed to encourage Australians to apply for private health insurance, and reduce the pressure on our public healthcare system.
If you earn over the amount required to apply the Medicare Levy Surcharge, you could be paying a minimum of $900 each year in additional tax as a single, or $1,800 each year as a family - simply because you’re not covered by an appropriate level of private health insurance.
It’s easy to confuse the Medicare Levy with the Medicare Levy Surcharge. The more widely known Medicare Levy is a 2% tax paid by most Australians that earn over $27,069, or seniors entitled to a tax offset that earn over $42,806. It’s been put in place to partly fund the public Medicare health system.
The Medicare Levy Surcharge is a separate and additional tax of 1% to 1.5% that you’ll have to pay if you’re a high income earner and don’t have private health cover. The family threshold increases by $1,500 for every additional child after your first.
The answer depends on your income. You’re required to pay the Medicare Levy Surcharge rate if you don’t have private health cover, and you earn over a certain level of income during the financial year.
You’ll have to pay 1% of your taxable income if you earn over $90,000 as a single, 1.25% if you earn over $105,000, and the maximum rate of 1.5% if you earn over $140,000.
If you’re in a couple or family you’ll have to pay 1% of your taxable income if you have a combined earning over $180,000, 1.25% with a combined earning over $210,000, and the maximum rate of 1.5% if you have a combined earning over $280,000.
Even if you don’t have private health insurance, if you earn less than $90,000 a year as a single, or $180,000 as a family, you don’t have to pay the Medicare Levy Surcharge rate.
It’s important to note that the Australian Tax Office has a special definition of taxable income when it applies to the Medicare Levy Surcharge. That definition includes additional factors such as fringe benefits, net investment losses and super contributions. These factors can make the difference between one threshold and another, and will impact the amount you have to pay.
Take the example of Josh, a 35-year-old single man who doesn’t have the right level of private hospital cover. Josh’s salary is $90,000 per annum.
When Josh fills out his tax return and completes his income test, he reports fringe benefits and net investment losses that raise his total taxable income to $117,000. This places him into Tier 2, which means he would pay 1.25% on his $117,000 taxable income, or the equivalent of $1,375.
If you’re single and earning over $90,000, or in a family with a combined income of over $180,000, and don’t have the appropriate level of hospital cover, then the Medicare Levy Surcharge can seriously start to add up.
The minimum amount you’ll have to pay as a single is $900 if you fall into the Tier 1 threshold, and a minimum of $2,100 if you fall into the highest income bracket. If you’re a family earning over $180,000, you could be taxed a minimum of $1,800 a year for not having the right level of hospital cover, while families in the highest income bracket could pay a minimum of $4,200.
To avoid the Medicare Levy Surcharge, or be eligible for a Medicare Levy Surcharge exemption as a high income earner, you need to have the suitable hospital cover from a registered private health fund for you, and your dependents.
This fund needs to have a total yearly front-end deductible or excess no higher than $500 for singles, or $1,000 for families and couples. This means if you make multiple hospital claims in a year, the excess you pay can’t be more than $500 for singles and $1,000 for couples.
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