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By global standards, the healthcare system is pretty good in Australia.
While the pandemic has put the health sector through its paces and our nation’s doctors, nurses and specialists are certainly battle-weary, most of us can still access high-quality healthcare when we need it most.
The Medicare Levy surcharge is an additional tax that you may need to pay if your income is above a certain level and you don’t have hospital cover as part of a private health insurance policy.
Put simply, the aim of the surcharge is to encourage higher income earners to use the private hospital system in a bid to reduce demand on the public system.
Wait, Don’t I Already Pay This?
The Medicare Levy Surcharge is different from the separate Medicare Levy, which helps fund some of the costs of Australia’s public health system. This levy is a flat 2% of your taxable income.
This Medicare levy is collected from you in the same way as income tax. Generally, the pay-as-you-go amount your employer withholds from your salary includes an amount to cover this Medicare levy.
On the other hand, you will also need to pay the Medicare Levy Surcharge if you, your spouse and your children don’t have an appropriate level of private hospital cover and you earn above a certain income.
How is the Medicare Levy Surcharge Calculated?
The Medicare Levy Surcharge (MLS) is calculated at a rate of 1%, 1.25% or 2% against your taxable income, total reportable fringe benefits and any amount on which family trust distribution tax has been paid.
So you pay the levy on top of the tax you pay on your taxable income. What you paid will be listed on your income tax statement, which you will need to keep for your records.
Source: privatehealth.gov.au
Who Pays the Medicare Levy Surcharge?
The Australian Taxation Office (ATO) explains that the base income threshold is $90,000 for singles, and $180,000 (plus $1,500 for each dependent child after the first one) for families.
However, you don’t pay the surcharge if you had a partner for the full year, or if your family income is above $180,000 (plus $1,500 for each dependent child after the first one), but your own income for MLS purposes was $23,365 or less.
Where it gets a little tricky is if your circumstances changed during the year. For example, if you separated from your partner or found a new partner during the year, you may be liable to pay the surcharge for the days you were single if you earned more than $90,000.
You may also be liable for the MLS for the number of days you had a partner with dependent children if your income was above the $180,000 threshold.
Cover Needed for Dependents
Of course, dependent children need to be considered for MLS purposes.
A dependent refers to a child under the age of 21, or a child aged 21 to 24 who is in full-time education, with minimal earnings.
Children count as a dependent if they live in the same house as you, and you’re generally feeding and clothing them, and paying for other costs, such as medical and educational costs, the ATO definition explains.
Who is Exempt from the Medicare Levy Surcharge?
Most of us will be charged the MLS as part of tax. But if you meet certain medical requirements, you’re here as a foreign student studying in Australia or you aren’t entitled to Medicare benefits, you may be eligible for an exemption from paying it.
What Kind of Hospital Insurance do I Need to be Exempt?
To be exempt from paying the MLS, you need to have hospital insurance cover from a registered health insurer, which means covering some or all of the fees and charges if you do have to stay in hospital.
The maximum permitted excesses for private hospital cover is $750 for singles and $1,500 for couples and families, even if you make multiple hospital claims.
You do not not need to take out ‘extras ’cover in order to be exempt: you just need hospital cover.
Frequently Asked Questions (FAQs)
Does the Medicare levy Surcharge apply if I have private hospital cover for part of the year?
The MLS is calculated on a daily rate, so if you pick up a private health insurance policy part-way through the year, you won’t pay for the entire year.
But if you don’t maintain the cover for the full financial year, you’re going to have to cough up for the surcharge for every day you don’t have hospital cover.
When do you pay the Medical Levy surcharge?
The MLS is collected from you in the same way as income tax. It will be paid out of the portion of your wages withheld by your employer, and is calculated when you lodge your income tax return.
How can I avoid the medicare levy surcharge?
A small number of people may be able to avoid the surcharge. If your income is less than $90,000, if you’re a dependent child living with your parents and studying full-time aged up to 24 years of age, and if you or your partner meet the medical exemptions listed here, you may be able to avoid paying.
Of course, the other way to avoid paying the MLS is to take out a private health policy that includes hospital cover. It’s worth working out whether the levy on your income will cost you more than your annual hospital health insurance cover.
Does everyone in your family need hospital cover to avoid the surcharge?
Yes, everyone in your family, including all dependent children, will need to be covered by your private hospital cover to avoid paying the surcharge.
