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What is the Medicare Levy Surcharge?

Earning over $90,000 a year? Avoid a nasty surprise at tax time by taking out hospital cover.

The Medicare Levy Surcharge (MLS) is a tax imposed by the Federal Government on Australians earning above a specified amount who don’t have adequate private health insurance. Its purpose is to take pressure off the public health system by encouraging those who can afford private health cover to purchase a policy.

Read on to find out about the MLS income thresholds, MLS rates and how to avoid it.

Compare hospital cover from over 30 funds.

When does your tax start getting affected?

Once you start earning over $90,000 a year (for singles) or $180,000 a year (for couples and families), you'll get impacted by the first tier of the MLS unless you have adequate hospital cover in place. The initial surcharge is 1%, increasing to a maximum of 1.5% depending on taxable income.

The income threshold for families increases by $1,500 for every dependent child after the first, so if you have more than one child you can earn more before becoming affected by the MLS.

How do you avoid the Medicare Levy Surcharge?

If you've reached an MLS threshold, the only way to avoid the surcharge (besides taking a pay cut), is to take out hospital cover. To be considered adequate under the MLS, the policy must:

  • Be purchased from a registered Australian health fund.
  • Cover some or all of the fees and charges for a stay in a hospital.
  • Have a maximum payable excess per year no greater than $500 for singles or $1,000 for couples and families.
Unfortunately the MLS is calculated on a day-by-day basis to stop people from doing this. If your income has moved into an 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, since it's deadline is also 30 June.

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

What are the Medicare Levy thresholds?

Single parents, couples and de facto couples fall under the family thresholds.

MLS levelsTaxable income thresholdsSurcharge applied
Tier 1Singles. $90,001 to $105,000
Families. $180,001 to $210,000
Tier 2Singles. $105,001 to $140,000
Families. $210,001 to $280,000
Tier 3Singles. $140,000+
Families. $280,000+

How does the ATO calculate the Medicare Levy Surcharge?

The following items are used to determine if you are affected by the MLS and what tier you fall under:

  • 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.
  • Exempt foreign employment income. Only if you or your spouse received a taxable income of $1 or more.

Some final questions you may have

The Medicare Levy is a tax that applies to all Australians at a standard rate of 2%. The MLS is an additional increase that is applied on top of the Medicare Levy once you begin earning a certain amount. People with specific medical conditions, foreign residents and those who aren't entitled to Medicare benefits may be able to apply for an exemption from the Medicare Levy.

Not unless it's combined with an appropriate level of hospital cover.

No, you must have hospital cover with a registered Australian fund.

You'll still have to pay the MLS for each day you aren't covered.

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