Medicare Levy

Medicare Levy VS Medicare Levy Surcharge.

These are not to be confused. Every Australian pays a Medicare Levy to help support our public health system, which is 2% of our income. All Australian residents and citizens pay this tax, and there is little one can do to avoid it. However, Australians that earn a higher income pay an additional tax called the Medicare Levy Surcharge (MLS).

For people that fall into this higher income bracket, the only way to avoid paying the Medicare Levy Surcharge is to hold a private hospital cover policy with no higher than $500 excess for a single, or $1000 excess for a couple or family. Simply put, the Government is giving higher income earners the option to either contribute more towards the public health system, or to use private health services to take pressure and cost away from the public health system and Medicare.

So really, it’s less of a tax benefit, and more about avoiding the tax but getting health insurance as well.

It’s important to understand that an Extras/Ancillaries Only policy is not sufficient to avoid the Medicare Levy Surcharge.

The Income Thresholds

So, what determines a higher income earner? The following tables describe what the annual income thresholds are, depending on individual or combined income for tax purposes. These are broken down into four categorized tiers: Base Tier, Tier 1, Tier 2, and Tier 3:

Single Income Couples Income Family Income *
Base Tier Below $90,000 Below $180,000 Below $180,000
Tier 1 $90k to $105k $180k to $210k $180k to $210k
Tier 2 $105k to $140k $210k to $280k $210k to $280k
Tier 3 Above $140k Above $280k Above $280k
* The family income thresholds are increased by $1,500 for each additional child after the first.

Bear in mind that this is your total taxable income, which can include multiple income streams such as investment properties. If you’re unsure which category you fall into, it’d be a good idea to speak to an accountant or someone that can give financial advice.

If you fall into the Base Tier income bracket, you do not pay the Medicare Levy Surcharge at all. If you fall into any of the higher tiers, however, the following table describes how much of your annual income will be taxed at the end of the financial year.

Base Tier Tier 1 Tier 2 Tier 3
0% 1.0% 1.25% 1.5%


How can Health Insurance help avoid the MLS?

Thankfully, it’s quite simple. For every day of the financial year that you hold a Private Hospital cover, you avoid paying the Medicare Levy Surcharge so each day reduces this tax. If you held cover for the entire year, you completely avoid paying the additional tax. If you held hospital cover for only part of the year, you avoid paying the additional tax for the total number of days it was held. This is reflected on a Tax Statement your private health fund will send you at the end of the financial year, which the Australian Tax Office requires as part of your tax return.

“It’s important to understand that an Extras/Ancillaries Only policy is not sufficient cover to avoid paying the Medicare Levy Surcharge.”

It doesn’t matter what level of private hospital cover is taken out, whether it be Basic, Mid or Top hospital cover, however, the excess can’t exceed $500 for a single policy, or $1000 for a couple/family policy. Most health funds have designed some very bare-boned private hospital cover policies that really don’t cover much in the way of benefits but still avoid the MLS, these might seem like a no brainer but you should be careful about what is actually covered and services such as ours will be happy to give you no obligation a advice over the phone or online.

On the other hand, it doesn’t cost much more to get a decent level of hospital cover that insures against thousands of common in-patient health services and surgeries. It comes down to your needs as an individual; it’s always a good idea to speak to a Health Insurance adviser before deciding on which cover to go for.

For advice on Health Insurance and tax, and/or to compare appropriate health funds, speak to an It’sMy health insurance adviser by giving us a call or check your level of cover online.


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