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.
If I take out cover just before tax time am I exempt for the whole year?
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.
What's the point of the low excess rule?
What are the Medicare Levy thresholds?
Single parents, couples and de facto couples fall under the family thresholds.
| MLS levels | Taxable income thresholds | Surcharge applied |
|---|---|---|
| Tier 1 | Singles. $90,001 to $105,000 Families. $180,001 to $210,000 | 1.00% |
| Tier 2 | Singles. $105,001 to $140,000 Families. $210,001 to $280,000 | 1.25% |
| Tier 3 | Singles. $140,000+ Families. $280,000+ | 1.50% |
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
What's the difference between the MLS and the Medicare Levy?
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.
Can I avoid the MLS with extras cover?
Not unless it's combined with an appropriate level of hospital cover.
Am I exempt from the MLS if I have hospital cover from an overseas fund?
No, you must have hospital cover with a registered Australian fund.
What happens if I temporarily suspend my cover?
You'll still have to pay the MLS for each day you aren't covered.
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