What is the Medicare Levy Surcharge?

Avoid paying extra taxes if you earn over $90,000.

The Medicare Levy Surcharge (MLS) is an additional tax between 1% and 1.5% of your income and kicks in once you're earning more than $90,000 a year. For every day that you haven't had hospital cover, you'll pay the tax man more. That's at least $75 a month extra in taxes.

If you think you'll earn more than $90,000 this year, take hospital cover out early as you're being penalised every day.

Compare cheap cover that will save you the surcharge

Here you can find some of the cheapest hospital cover options from Finder partners. All prices are based on a single living in Sydney, NSW with $500 excess. They cover emergency ambulance and would make you exempt from the Medicare Levy Surcharge at tax time.

Fund	Policy Name	Tier level	Price per month	Apply
	Starter Basic	Basic	$71.20	Go to Site
	Basic Essential Hospital Plus	Basic	$75.76	Go to Site
	Hospital Bronze Plus	Bronze	$91.60	Go to Site

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What are the 2018 thresholds for the Medicare Levy Surcharge?

The MLS is calculated by a tier system, at a rate between 0% and 1.5% of your income.

The table below outlines the MLS rate that applies based on your income level for the period from 1 April 2017 to 31 March 2018:

How is income calculated for the threshold?

The ATO takes a range of factors into account when determining your MLS income and whether you need to pay this surcharge:

• Taxable income. Includes the net amount paid towards family trust distribution tax.
• Reportable fringe benefits. Includes all those listed on your PAYG payment summary.
• Total net investment losses. Includes net financial investment losses and net rental property losses.
• Super contributions. Includes deductible personal super contributions and reportable employer super contributions.
• Spousal trust income. If you have a spouse, their share of the net income of a taxable trust will be taken into account.
• Exempt foreign employment income. Only if you or your spouse received a taxable income of $1 or more.

Do you have to pay the Medicare Levy Surcharge if you have private health insurance?

No. If you hold approved hospital cover from an Australian fund you are exempt from the MLS.

If you don't have private health insurance, you will need to pay if:

• You’re a single person and your annual income for MLS purposes is greater than $90,000; or
• You’re a couple or family and your combined annual income for MLS purposes is greater than $180,000.

It’s also worth noting that if your family exceeds the MLS income threshold and you don’t have private hospital insurance that covers yourself, your spouse and your children, you will still need to pay the MLS.

For example, let’s say you and your spouse exceed the combined MLS income threshold. While you have private hospital cover for yourselves, you haven’t yet taken out cover for your two young children. In this scenario, both you and your spouse would need to pay the surcharge.

Prices are based on a single living in Sydney, NSW.

Do I need hospital cover to avoid Medicare Levy Surcharge?

If you earn less than $90,000 (for singles) or $180,000 (for couples/families) per year, you won’t have to pay the MLS.

If your income exceeds the limits listed above, you will need to take out private hospital health insurance to skip the surcharge. You can’t just take out any old policy though. It must:

• Provide private patient hospital cover
• Have a maximum payable excess per year of $500 for singles and $1,000 for couples and families
• Be purchased from a registered Australian health fund

You’ll need to maintain this appropriate level of cover for the full year in order to avoid paying the surcharge

You also won’t have to pay the MLS in the following circumstances:

• If you’re in a Medicare Levy exemption category (see above)
• If your income exceeds the MLS threshold but you had already purchased private hospital insurance with a total yearly excess of greater than $500 for singles or $1,000 for couples/families.

Questions you might have about the Medicare Levy Surcharge

• How is the Medicare Levy Surcharge different from the Medicare Levy?

  The Medicare Levy is a tax that applies to most Australians at a standard rate of 2%. The MLS is an additional tax that is applied on top of the Medicare Levy for high-income earners who do not have any private hospital cover.

• How can I find out the amount I need to pay?

  If you need to pay the MLS, it will be included with the Medicare Levy and shown on your income tax notice of assessment as ‘Medicare levy and surcharge’.

• Will taking out extras cover affect whether or not I pay the MLS?

  No. To avoid the MLS, you must take out an appropriate level of private patient hospital cover. Standalone extras policies do not include hospital cover.

• Will travel insurance provide sufficient private patient hospital cover?

  No. You will need to take out private hospital health insurance with an Australian health fund.

• I’m suspending my health insurance while I go overseas. Will I need to pay the MLS?

  If you cancel or suspend your private health cover for a period of time while you go overseas, you are considered to not have an appropriate level of hospital cover during that time and you then may be liable for the MLS. However, your income will need to exceed the MLS threshold and you must still be an Australian resident for tax purposes in order for the surcharge to apply.

• If I take out private hospital cover just before tax time am I exempt from the MLS for the whole year?

  Unfortunately the MLS is calculated on a day-by-day basis to stop people from doing this. If your income has moved above the MLS threshold during the year it's still worth considering cover, since the days you have cover are deducted from your surcharge at tax time.

  Additionally, if you've just turned 31 you can also avoid the Lifetime Health Cover loading by taking out hospital cover before the end of financial year.

• Why does my hospital cover have to have a $500 maximum excess?

  Since an excess lowers the cost of hospital cover in exchange for paying a lump sum when you’re admitted to hospital, this requirement prevents people on high incomes from choosing a maximum excess to keep their premium low and then getting treatment at a public hospital, which defeats the purpose of the MLS.

• How can I find out whether my hospital cover is appropriate to help me avoid the MLS?

  Contact your health fund for details.