Medicare levy surcharge
The Medicare levy surcharge is a tax for Aussies earning over $90K. Here's how you can avoid it.
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If you earn over $90,000 a year, or you and your partner have a combined income of over $180,000 a year, you could be paying more tax than you have to.
That's because Aussie earners in that threshold are hit with the Medicare levy surcharge (MLS), if they don't have an adequate level of private hospital insurance.
The surcharge is an additional tax of between 1% and 1.5% of your income. If you're earning just over $90K, that's a monthly tax of at least $75. But why pay it when you can get hospital cover for less?
This guide will explain exactly what the MLS is, how much it could be costing you, and where you can find a policy that's cheaper than paying the penalty. That way, you can keep more of your hard-earned money, to spend however you like.
What is the Medicare levy surcharge?
The MLS is designed to encourage high earners to take out private hospital cover, in order to ease the burden on the public system.
It means you're automatically taxed an extra 1%, 1.25% or 1.5% of your income, if you earn over $90,000 a year and don't have private hospital insurance.
What are the MLS income thresholds in 2020?
The table below shows how your annual earnings determine how much extra tax you pay under the Medicare
|Singles||$90K or less||$90,001 - $105K||$105,001 - $140K||$140,001 or more|
|Couples||$180K or less||$180,001 - $210K||$210,001 - $280K||$280,001 or more|
|Medicare levy surcharge||0%||1%||1.25%||1.5%|
Note: The family income threshold is increased by $1,500 for each MLS dependent child after the first child.
How much could the MLS cost me?
The dollar cost of the Medicare levy surcharge is at least $75 a month, for people who earn over $90,000 and don't have private hospital cover. However, it could be much more if you're earning above $90,000.
The table below shows some examples of different income brackets, and how they would be taxed by the Medicare levy surcharge,
|Income||MLS||Monthly cost||Annual cost|
Remember: The MLS doesn't just take your wage into account. The ATO uses a special definition of income to calculate the MLS.
How can I avoid the Medicare levy surcharge?
You can avoid the MLS by having an "appropriate level" of private hospital insurance. That just means any hospital policy which has an excess of $750 or less for singles, or $1,500 or less for couples and families. Travel insurance with medical cover isn't considered appropriate.
Here's the best bit though. You can buy a qualifying hospital policy for less than the cost of the Medicare levy surcharge. That basically means you can get private hospital insurance, without spending a cent. In fact, you can even save money!
|Income||Annual MLS cost||Sample hospital cover cost||Potential saving|
*For the sample cost of hospital cover, we averaged the price of three different basic policies, offered by three different Australian insurers. All are considered appropriate by the ATO.
Does that mean I can get free hospital insurance?
Yes! Rather than paying the Medicare levy surcharge, you can buy a suitable level of hospital cover instead. That way, you not only avoid the extra tax, you get health insurance too.
If you're in one of the higher earning thresholds, you can even find pretty comprehensive hospital policies which are cheaper than the surcharge.
|Income||Annual MLS cost||Sample policy available for less money||Major benefits||Interested?|
Basic Essential Hospital Plus
|Get a policy for $889 a year|
Silver Plus Assured
|Benefits listed above, plus: ||Get a policy for $1,368 a year|
Top Hospital Gold
|Benefits listed above, plus: ||Get a policy for $2,139 a year|
*The policies listed are just an example and other policies are available in the market. All have an excess of $750. Not all benefits are listed.
Find hospital insurance and avoid the MLS
We've added a search function designed to help Aussies who are looking to avoid the MLS. Just click 'reducing tax and paying low premiums' when asked what's most important to you.
How are my earnings calculated for the threshold?
The ATO takes a range of factors into account when determining your income and whether you need to pay the Medicare levy surcharge. They include:
- Taxable income. Including the net amount paid towards family trust distribution tax.
- Reportable fringe benefits. Including all those listed on your PAYG payment summary.
- Total net investment losses. Including net financial investment losses and net rental property losses.
- Super contributions. Including 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.
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