After a client receives their income tax assessment, we are often asked “What is the Medicare Levy Surcharge I have paid for?”
In short, the Medicare Levy Surcharge is a payment some medium and high-income earners pay in addition to the Medicare Levy. The surcharge helps fund Australia’s public health system and encourages those people who are higher income earners to sign up for personal private health cover. By taking out an appropriate level of cover, they can avoid paying the surcharge. It also means that if they do require a visit to the hospital, they can go to a private hospital therefore reducing pressure on public medical services.
The surcharge is designed to encourage more Australians to take out private hospital insurance. By doing this, the private health insurers, not the public health system, foots the costs of medical care if the need arises.
Who pays the Medicare Levy Surcharge?
Private health insurance is expensive with rates often increasing with benefits decreasing. Therefore, the government applies the surcharge only if you meet the following criteria:
- You are single and earn over $90,000 a year or a family who earn a combined income above $180,000, and
- You do not have private hospital cover.
If your income is below these amounts or you have private hospital cover, the surcharge does not apply.
How is the Medicare Levy Surcharge calculated?
The surcharge is calculated as a simple percentage of your annual income. As a general rule, the more you earn the higher the Medicare levy surcharge.
The income tiers for individuals are:
- Less than $90,000 = 0% of your income
- $90,000 – $105,000 = 1% of your income
- $105,001 – $140,000 = 1.25% of your income
- $140,001 and above = 1.5% of your income
The income tiers for families are:
- Less than $180,000 = 0% of your income
- $180,000 – $210,000 = 1% of your combined income
- $210,001 – $280,000 = 1.25% of your combined income
- $280,001 and above = 1.5% of your combined income
Is it possible to avoid the Medicare Levy Surcharge?
If you earn over $90,000 as an individual or $180,000 as a couple or family, there is a simple way to avoid the surcharge. You will need to have the ‘appropriate’ level of private hospital cover. When you complete your private health cover details on your annual tax return, the ATO will not charge you the Medicare levy surcharge.
‘Appropriate’ private hospital cover that allows you to avoid the surcharge must include hospital cover. An extras-only policy will mean the surcharge will still apply if you earn over the income thresholds.
If you need more information about your personal situation, please contact your Arabon accountant or call 1300 ARABON for a confidential discussion about what’s best for you.