What is the Medicare Levy Charge?

The Medicare Levy is a tax that helps fund the public healthcare system in Australia. Nearly all Australian taxpayers contribute to this fund, with the standard rate being 2% of your taxable income. However, if you earn above a certain threshold and don’t have private hospital cover, you might need to pay an additional charge called the Medicare Levy Surcharge (MLS).

Why Do We Have the Medicare Levy Surcharge?

The Australian government introduced the Medicare Levy Surcharge to encourage people with higher incomes to take out private hospital coverage. This helps reduce the pressure on the public Medicare system. If you earn above a certain amount and don’t have private hospital cover, you’ll need to pay the surcharge.

Can you Avoid the Surcharge?

There are two primary ways to avoid paying the Medicare levy surcharge. These options include:

Option 1

Keep your income below the threshold (which obviously no one wants to do!)

Option 2

You can have a private hospital covered by a registered health insurer.

But before you proceed, it’s important to know that your hospital cover must meet certain requirements. For example, from 1 April 2019, the total excess on your policy should not exceed $750 for singles or $1,500 for families.

Dependents and the Surcharge

If you have dependents and your income is above the family threshold, everyone in your family must have hospital coverage. If your spouse or one of your dependents is not covered, you’ll need to pay the surcharge.

What Counts as Approved Hospital Cover?

To be exempt from the surcharge, your hospital cover must:

• Be with a registered health insurer.
• Cover some or all fees for hospital stays.

General treatment coverage without hospital cover, overseas visitors cover, and coverage with non-registered insurers do not qualify.

Special Cases

If you are from a country that has a reciprocal healthcare agreement with Australia, you can avoid the surcharge by buying an approved hospital insurance policy. However, note that this insurance may offer limited benefits for hospital treatment.

Paying the Surcharge for Part of the Year

If you have hospital coverage for only part of the year, you’ll get a partial exemption. You’ll still need to pay the surcharge for the days you were not covered. If you suspend your hospital cover (e.g., while travelling overseas), you will have to pay the surcharge for those suspended days.

Use Cases

To better understand how the Medicare Levy Surcharge works, let’s look at a few example scenarios.

Scenario 1: Single Individual

Sarah is a single professional earning $100,000 a year. She does not have private hospital cover. Since her income exceeds the $93,000 threshold, she must pay the Medicare Levy Surcharge. Her surcharge rate is 1%, so she will pay $1,000 in MLS for the year. If Sarah had private hospital cover, she could have avoided this surcharge.

Scenario 2: Family with Two Children

John and Emily have a combined income of $200,000. They have two children under 18. The family income threshold for them is $186,000. Since their income exceeds this threshold, they must pay the surcharge unless they have private hospital cover for the entire family. If only John and Emily were covered, but not their children, they would still need to pay the surcharge.

Scenario 3: Part-Year Coverage

David had private hospital cover for eight months but cancelled it for the remaining four months of the year. His annual income is $120,000. Since he was without coverage for part of the year, he will need to pay the surcharge for the four months he was not covered. His surcharge rate is 1.25%, so he will pay 1.25% of four months’ worth of his income in MLS.

How to Calculate Your Income for MLS?

Your income for MLS purposes includes your taxable income, reportable fringe benefits, total net investment losses, and reportable super contributions. To calculate your MLS liability, you can use the Australian Taxation Office’s Private Health Insurance Rebate Calculator. But, the better option is to consult with tax professionals like Nanak accountants. They can offer better insights on the matter.

Impact of the Surcharge

The Medicare Levy Surcharge encourages people with higher incomes to take out private health insurance. This not only helps reduce the demand for public health care but also provides individuals with more health coverage options. You can avoid the surcharge if you have a private office health cover. Moreover, you can benefit from quicker access to medical treatments and services.

Consult with Professionals

You can get an exemption from the medical levy charge if you get private hospital cover. But the task is a lot more complex than you think. You cannot make any sudden moves. So, it’s always better to consult tax and accounting professionals like Nanak Accountants. They can help you make the right decision based on multiple factors. Remember, you’ll have to consider a lot of variables like your income, health needs, and financial situation.

Wrapping Up

The Medicare Levy Surcharge is aa vital part of Australia’s healthcare funding system. The goal of this surcharge is to ensure that higher-income earners contribute in maintaining the healthcare system. This surcharge also encourages the use of private health insurance. If you are still confused about Medical Levy Surcharge, our experts are here to help. Just fill out this form, and our experts will reach out to you.