Medicare Levy vs Medicare Levy Surcharge
The majority of Australian resident taxpayers pay the Medicare Levy which partly funds access to health care through Medicare. All Australian residents with a taxable income above $26,668 ($42,172 for seniors and pensioners) pay the Medicare Levy at a rate of 2% of their taxable income.
The Medicare Levy Surcharge (MLS) is levied on Australian taxpayers who do not have an appropriate level of Private Health Insurance and who earn above a certain income. It is levied on a sliding scale of 1 to 1.5% of your adjusted income and is payable in addition to the 2% Medicare Levy. The surcharge aims to encourage individuals to take out private hospital cover, and where possible, to use the private system to reduce the demand on the public Medicare system.
Your adjusted income for the purposes of MLS is the sum of the following:
- taxable income
- reportable fringe benefits
- total net investment losses
- reportable super contributions
- if you have a spouse, their share of the net income of a trust on which the trustee must pay tax
- exempt foreign employment income.
You are considered to be a member of a family during any period of the year where you contributed to the maintenance of a dependent. Your dependents include:
- spouse, married or de facto, same or opposite sex
- children under 21 years of age
- children 21-24 years old who are full-time students.
When to take up Private Health Insurance cover
If you are a high income earner without an appropriate level of private health insurance, you will be liable for MLS. Therefore taking out an appropriate level of Private Health Insurance would save you being charged the surcharge. The main thing to consider before taking out private health insurance in order to avoid the MLS would be your age. If you are 30 years of age or older, you will be charged a further 2% Lifetime Health Cover (LHC) loading on your private health insurance premium for every year you are over 30 years of age. The maximum LHC loading is capped at 70%.
When taking out Private Health Insurance you may also be eligible to receive the private health insurance rebate. The rebate is an amount the government contributes towards the cost of your private health insurance premium, however, it is not paid on any LHC loadings.
This rebate is income tested. If you have a high income, your rebate entitlement may be reduced, or you may not be entitled to the rebate at all.
Most people claim the private health insurance rebate as a reduction in the amount of private health insurance premiums they pay to their insurer. You can nominate with your health insurance provider which Tier of rebate you would like to claim. Alternatively, it can be a refundable tax offset when you lodge your tax return.
When preparing your tax return, your tax agent will need your private health insurance statement in order to calculate any over-payment or underpayment of the rebate.