Australia’s public healthcare system, Medicare, is one of the best in the developed world1. When many Aussies visit their GP, fill a prescription, or receive specialised care, they 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 pays the Medicare Levy Surcharge and how you can avoid paying it.
What is the Medicare Levy Surcharge?
The Medicare Levy Surcharge is a tax you pay if you don’t have private health cover and your annual taxable income is over $90,000 as a single or $180,000 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 health insurance, helping to reduce the burden on the public healthcare system.
The surcharge is payable for each day you don’t have private health insurance 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 levy 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 $90,000, 1.25% if you earn over $105,000, and the maximum rate of 1.5% if you earn over $140,000. Couples and families are taxed based on their combined taxable income. Couples will pay a 1% levy on a combined income of over $180,000, 1.25% on a combined income of over $210,000, and the maximum rate of 1.5% if they have a combined earning over $280,000.
Still confused? We’ve outlined the three tiers in this handy table so you can see where you fit in.
|
No Charge |
Tier 1 |
Tier 2 |
Tier 3 |
| Less Than $90,000 | $90,001-$105,000 | $105,001-$140,000 | $140,001+ |
| Less Than $180,000 (combined) | $180,000-$210,000 (combined) | $210,001-$280,000 (combined) | $280,000+ (combined) |
| 0% | 1% | 1.25% | 1.5% |
If you have two or more dependent children, the family threshold will increase by $1,500 for each dependent child after the first child2. If you’re subject to the Medicare Levy Surcharge, everyone in your family will need coverage in order to not pay the levy.
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 $2,0003;
- Total net investment losses;
- Reportable super contributions.
The ATO will receive this information each year when you file your tax return2.
Helpful Tip:If your taxable income is more than $90,000 (or $180,000 combined as a couple or family) and you don’t have private hospital cover, then you’ll have to pay extra tax thanks to the MLS. Exactly how much MLS you’ll pay if you earn over $90,000 and don’t have hospital cover depends on your exact taxable income and any reportable fringe benefits that you received but it’ll be a minimum $900 in additional tax (that is, at least 1% of your taxable income from the first dollar). Given basic hospital policies are available for just a little over a $100 a year more, if you are a higher income earner then taking out private cover simply makes financial sense. And remember only the appropriate level of hospital cover – not extras – will help you avoid paying the surcharge come tax time.
|
How can I avoid paying it?
While 1% of your income might not sound like a lot, the Medicare Surcharge Levy can really add up. Don’t believe us? Check this out:
|
No Charge |
Tier 1 |
Tier 2 |
Tier 3 |
| Less Than $90,000 | $90,001-$105,000 | $105,001-$140,000 | $140,001+ |
| $0 | $900.01 | $1,312.51 | $2,100.1 |
Couples Income Threshold | Less Than $180,000 (combined) | $180,000-$210,000 (combined) | $210,001-$280,000 (combined) | $280,000+ (combined) |
Couples Minimum MLS payment | $0 | $1,800.01 | $1,312.51 | $4,200.15 |
| 0% | 1% | 1.25% | 1.5% |
If you’re thinking that seems like a lot of money to pay just to not have healthcare, you’re right. The program was literally designed to get higher-earning Aussies on private healthcare in order to ease the burden on Medicare and give healthcare to those who need it the most. 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 hospital policy with an excess of $750 or less for singles, and $1,500 for couples3. General cover, or extras cover, isn’t considered appropriate cover3. Travel insurance is also not considered an appropriate level of cover.
If you have private healthcare that isn’t deemed an appropriate level of cover, and you’re earning over the income threshold, you’ll still be required to pay the Medical Levy Surcharge.
Is private health insurance worth it?
Aside from less tax, there can be many benefits to having private health insurance. For example, many people feel they have more control over their health care when they can choose which doctor treats them in hospital. And elective surgeries generally have a shorter waiting period through private hospitals compared to public hospitals.
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 private health insurance before you turn 31, you can also avoid paying the Lifetime Health Cover loading. This is a 2% loading incurred every year up to the maximum of 70% once you decide to take up hospital cover. 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 many Australian Health Funds using our comparison tool or give one of our friendly experts a call on 13 19 20.
