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What is the Medicare Levy Surcharge?

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Medicare Levy Surcharge

The Medicare Levy Surcharge is an additional tax designed to encourage higher income earners to take out Hospital cover. It is on top of the 2% Medicare Levy all Australian taxpayers currently incur as a contribution to the national public health system. The policy was introduced in 1997 and is designed to relieve excessive strain on the public health system. This additional Medicare surcharge is calculated when individuals complete their tax each financial year.

How does it work?

The Medicare Levy Surcharge (MLS) is a percentage of your gross taxable income each financial year, typically 1% for most taxpayers with an MLS liability, with increased percentages for higher income earners.

Income Thresholds 2015 -2016

No Surcharge 1% 1.25% 1.5%
Singles $90,000 or less $90,001 – $105,000 $105,001 – $140,000 $140,001 or more
Couples/Families $180,000 or less $180,001 – $210,000 $210,001 – $280,000 $280,001 or more

Let’s take a look at a real life example!

Suzie is single with a pre-tax salary for the coming financial year of $98,000. Because Suzie doesn’t have an eligible health insurance policy, she’ll have to pay an extra 1% of her salary or $980.00 as the Medicare Levy Surcharge (an extra tax). Because an eligible hospital cover can cost less than $980 per year, Suzie can actually save money by taking out health insurance and avoiding the Medicare Levy Surcharge.

Source: www.ato.gov.au accurate from 1 July 2014

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What about dependent children?

The income thresholds increase by $1500 for every dependent child after the first.

For calculating the Medicare Levy Surcharge, a dependent child is:

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

How much personal income is liable for the Medicare Levy Surcharge?

Income for Medicare Levy Surcharge purposes includes your taxable income, fringe benefits, superannuation contributions minus any net losses. If you have a spouse, your combined income is used to calculate the Medicare Levy Surcharge.

Am I liable for the Medicare Levy Surcharge?

You have to pay the surcharge if:

  • Your taxable income is above $90,001 ($180,001 for couples/families) in a single financial year and you don’t have Hospital cover with an excess of less than $500 ($1000 for couples/families)

How can I avoid paying the Medicare Levy Surcharge

  • Reduce your taxable income to $90,000 or less (singles) or $180,000 or less for families/couples, or
  • Maintain private hospital cover with an excess of not more than $500 (singles) or $1000 (couples/families) per year

How much will I save by taking out private health cover?

If your income is $100,000 per year, you are single and you don’t have eligible health insurance, then you are liable to pay 1% of your taxable income toward the Medicare Levy Surcharge, effectively $1000 in additional tax payments. Most private health fund base premiums for a basic hospital cover are less than $1000 per year – you could save hundreds of dollars depending on your arrangement and when you take out cover.

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If I take out hospital cover on the last day of the financial year, does it count for the whole year?

The Medicare Levy Surcharge is based on the number of days you did not maintain an eligible hospital cover through a private health fund. If you choose to take out private health cover on the last day of the financial year, you will still be liable for the Medicare Levy Surcharge for the remaining days that you weren’t covered.

Need more help?

Contact Choosewell to find out more about the Medicare Levy Surcharge and how it affects your taxable income. Call us on 1300 421 154 and ask how we may be able to reduce your tax bill with basic Hospital cover at a competitive rate.

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