There are a whole lot of things you need to think about at tax time. One of those is the Medicare Levy Surcharge. We explain the purpose of this tax, who has to pay it, how much it is – and how best to avoid it.
What is the Medicare Levy Surcharge?
Most taxpayers help contribute to Australia’s world-class public healthcare system, which is funded by Medicare through the Medicare Levy.
And some taxpayers also need to pay another tax called the Medicare Levy Surcharge – an entirely different tax, despite the very similar name.
The Medicare Levy Surcharge (MLS) is designed to reduce pressure on the public hospital system by encouraging people earning over a certain income level to take out private health insurance and access services through the private hospital system.
That’s where having private hospital cover could help reduce the amount of tax you pay, if you earn over a certain income level.
How is the surcharge different to the Medicare Levy?
The MLS is different to the Medicare Levy, which most taxpayers pay each year to contribute to Medicare. The Medicare Levy is calculated at 2% of your taxable income, which could be more than paying for a basic hospital and extras policy.
The Medicare Levy is included in the amount your employer withholds from your income or salary, and then calculated when you lodge your tax return.
The Medicare Levy Surcharge, on the other hand, is levied on Australian taxpayers who do not have an appropriate level of private hospital cover and earn above a certain income.
You can calculate your potential Medicare Levy as well as any Medicare Levy Surcharge amount using this calculator from the ATO.
Do I have to pay the Medicare Levy Surcharge?
If you earn over a certain amount in the financial year, and you don’t have private hospital cover, you’ll probably have to pay the MLS.
But if you have private hospital cover, you won’t need to pay the MLS for the period you have that cover.
All of CUA Health Insurance’s hospital cover policies satisfy the Government criteria to avoid the MLS.
Having private health insurance with hospital cover means some of the costs will be covered if you choose your doctor, have elective surgery, and stay in a private hospital, reducing the burden on public hospitals and staff.
If your income is over $93k as a single, or $186k combined as a couple, then you’ll be required to pay the MLS if you don’t have hospital insurance.
This includes income from all sources, not just your salary or wages. For example, it includes income from reportable fringe benefits, investments and reportable super contributions.
Will having private hospital cover help right away?
The MLS is calculated every day that you don’t have private hospital cover, so as soon as you take out the right level hospital cover, you’ll stop being liable for the MLS.
For instance, even if you only get private hospital insurance 30 days before the end of the financial year, you won’t have to pay the MLS for those 30 days.
How much will I have to pay?
How much you have to pay will depend on your annual income. The surcharge rate is between 1% and 1.5% of your income, depending on your income threshold.
Check out the table below based on information from the Australian Tax Office (ATO) to work out how much MLS you’ll need to pay.
The surcharge levels applicable from 1 July 2023.
|Base Tier||Tier 1||Tier 2||Tier 3|
|Single thresholds||$93,000 or less||$93,001 - $108,000||$108,001 - $144,000||$144,001 or more|
|Family thresholds||$186,000 or less||$186,001 - $216,000||$216,001 - $288,000||$288,001 or more|
|Medicare levy surcharge||0%||1%||1.25%||1.5%|
You can also calculate how much MLS you have to pay by using this income tax estimator from the ATO.
Do I always have to pay the surcharge?
In some cases, you won’t have to pay the Medicare Levy Surcharge.
You won’t have to pay it if you:
- Have an income below the thresholds
- Have an income over the thresholds, but also have private hospital insurance for you and all your dependants (your dependants are your spouse, children under 21 and any children under 25 who are students)
- Have certain medical conditions
- Are a member of the Australian Defence Force (you will have a half or full exemption, depending on your circumstances).
Your private hospital insurance will also need to be with a registered Australian health insurer, like CUA Health.
Will extras cover help?
While extras cover can help reduce the cost of services such as dental, optical and physiotherapy, it’s not the same as private hospital cover.
Unfortunately, if you only have extras cover, you’ll still have to pay the MLS at tax time.
What about the Lifetime Health Cover loading?
The earlier you take out private hospital cover, the less Lifetime Health Cover (LHC) loading you’ll pay, too. If you take out private hospital cover before you turn 31, you won’t have to pay this extra 2% LHC loading.
But if you’re over 31, you’ll have to pay a 2% loading on top of your premium for every year you are aged over 30.
Depending on your age and income, you could also get the government’s Private Health Insurance Rebate towards your private hospital and extras cover.
Find out more about whether you could benefit financially from having hospital cover.