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The Medicare Levy Surcharge
The Medicare Levy Surcharge
Australia’s public healthcare system, Medicare, is one of the best in the developed world.1The Commonwealth Fund – Mirror, Mirror 2021: Reflecting Poorly | Health Care in the U.S. Compared to Other High-Income Countries When many Aussies visit their GP, undergo hospital treatment, or receive specialised care, they can leave without owing a cent. The Medicare Levy Surcharge helps the government fund Medicare while also encouraging those who can afford it to take up Private Health Insurance. In this article, we’ll cover who typically might pay the Medicare Levy Surcharge and how you could possibly avoid paying it.
Learning about the Medicare Levy Surcharge
What is the Medicare Levy Surcharge?
The Medicare Levy Surcharge (MLS) is a tax you may need to pay if you don’t have an appropriate level private patient hospital cover and your annual taxable income is over $97,000 as a single or over $194,000 as a couple or family. Depending on your income, the surcharge will be between 1% to 1.5%. It’s designed to incentivise higher income earners to take up private hospital cover helping to reduce the burden on the public healthcare system.
The surcharge is payable for each day you don’t have appropriate private hospital cover within a financial year. That means if you don’t purchase a policy before 1st July, but buy one later in the year, you’ll pay a charge for each day you weren’t covered.
Is it the same thing as the Medicare Levy?
The Medicare Levy and Medicare Levy Surcharge are both used by the government to fund public healthcare. The Medicare Levy is a 2% tax paid by most Australians, while the Medicare Levy Surcharge only applies to people above a certain annual income. Holding private hospital cover will not impact any Medicare Levy payable.
How much is the Medicare Levy Surcharge?
The Medicare Levy Surcharge is calculated based on your taxable income – the more you earn, the higher percentage you’ll pay.
As a single, you’ll pay 1% if your taxable income is above $97,000, 1.25% if you earn over $113,000, and the maximum rate of 1.5% if you earn over $151,000.
Couples and families are taxed based on their combined taxable income. Couples will pay a 1% levy on a combined income of over $194,000, 1.25% on a combined income of over $226,000, and the maximum rate of 1.5% if they have a combined earning over $302,000.
Still confused? We’ve outlined the three tiers in this handy chart so you can see where you fit in.
If you have two or more dependent children, the family threshold will increase by $1,500 for each dependent child after the first child. If you’re subject to the Medicare Levy Surcharge but want to try avoid it, then everyone in your family – including your dependents – will need adequate private health insurance coverage.
What counts as Taxable Income?
The ATO uses a specific definition of income, called Income for MLS purposes, when calculating your Medicare Surcharge Levy. Your annual MLS income will include:
- Your taxable income, including any money that you’re paying a family trust distribution tax on. This will include your spouse’s taxable income, if you have one;
- Reportable fringe benefits, which are benefits you receive from your employer (other than a salary) that equal more than $2,000;
- Total net investment losses;
- Reportable super contributions.
- If you have a spouse, you must include their share of the net income of a trust which the trustee must pay tax and which has not been included in their taxable income.
Can I avoid paying the Medicare Levy Surcharge?
While 1% of your income might not sound like a lot, the Medicare Levy Surcharge can really add up. Don’t believe us? Check this out:
If you’re thinking that seems like a lot of money to pay just to not have private health insurance, you’re right. The government program was literally designed to get higher-earning Aussies on private healthcare in order to ease the burden on Medicare and allow healthcare access to everyone. As you start to earn more money, you can avoid paying these fees by opting into an appropriate level of private hospital cover.
What is an appropriate level of private hospital cover?
The ATO defines an appropriate level of cover as a private hospital policy with an excess of $750 or less for singles, and $1,500 or less for couples. General cover, or extras cover, isn’t considered appropriate cover.
If a person has private health insurance that isn’t deemed an appropriate level of cover, and is earning over the income threshold, they’ll still be required to pay the Medical Levy Surcharge.
Who gets an exemption for the Medicare Levy Surcharge?
People who are already exempt from paying the Medicare Levy and don’t have any dependents won’t usually need to pay the surcharge.
How do you know if you’re eligible for an exemption on your Medicare Levy? Well, you might be if you meet any of the following conditions for all or part of the financial year:
- You were a blind pensioner
- You received sickness allowance from Centrelink (allowance ceased 20 September 2020)
- You were entitled to full free medical treatment for conditions under:
- Defence Force arrangements
- Veterans’ Affairs Repatriation Health Card (also known as a ‘Gold Card’)
Exemptions may also apply in the following cases:
- You were a foreign resident for tax purposes during the whole year
- You were a member of a diplomatic mission or consular post in Australia
- You were a temporary resident for Medicare purposes and weren’t entitled to Medicare benefits
Remember, for the MLS, the above exemptions only apply if you don’t have any dependents (such as children). But even if you do have dependents, it may be worthwhile to speak to the Australian Tax Office. You could still be eligible for a full or partial exemption on the Medicare Levy in certain circumstances, which may also apply to the MLS.
Is Private Health Insurance worth it?
There can be many benefits to having private health insurance. For example, many people feel they have more peace of mind when it comes to their health care, and they can choose which doctor treats them in hospital.
You may also get access to additional services with private health insurance if you choose to hold an extras policy, like psychology, physiotherapy, dental and optical.
If you get eligible hospital cover before you turn 31, you can also avoid paying the Lifetime Health Cover loading. This is a 2% loading incurred for every year you don’t have hospital cover, up to the maximum of 70%, added onto your premiums when you do decide to take out a policy. Just like the Medicare Levy Surcharge, this can really add up.
Where do I start?
If you’re ready to explore private health insurance, we’re here to help. Compare a range of Australian Health Funds using our Comparison Tool or give one of our friendly trained consults a call on 1800 784 772.
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