Do you earn over $90,000 a year? Find out how the MLS will affect you and how you can avoid paying the surcharge.
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 hospital insurance. It’s designed to encourage those who can afford take out private health cover to do so, to take some of the pressure off the public health system.
Will you be affected by the MLS?
The MLS is calculated at the rate of 1% to 1.5% of your income for Medicare Levy Surcharge purposes. If you earn less than $90,000 a year (for singles) or $180,000 a year (for couples and families), then the MLS will not affect you. However, you will still have to pay the 2% Medicare levy at tax time like everybody else.
It’s only when you earn above the threshold that the MLS applies. The more you earn above the income threshold, the higher your MLS rate will be if you don't have private health cover. The MLS starts at 1% for those earning over $90,000 a year and then rises in tiers.
The income threshold for families increases by a further $1,500 for every dependent child after the first, which means families with more than one child are able to earn more before becoming affected by the MLS.
Avoiding the MLS
To be exempt from paying the Medicare Levy Surcharge as a high income earner, you must take out private hospital cover that meets the following conditions:
- It must be held with a registered Australian health fund for hospital treatment provided in an Australian hospital or day hospital
- It must cover some or all of the fees and charges for a stay in hospital
- It must have a maximum payable excess per year no greater than $500 for singles or $1,000 for couples and families.
The requirement for a low front-end deductible (excess) is to prevent policyholders from maximising their excesses to reduce their premiums even further, because they have no intention of using the policy should they require hospital treatment.
Medicare levy thresholds
The Medicare Levy Surcharge covers three income tiers:
- Tier 1. Those earning from $90,000 to $105,000 per year for singles and $180,000 to $210,000 per year for families pay a MLS rate of 1%.
- Tier 2. Those earning from $105,000 to $140,000 per year for singles and $210,000 to $280,000 per year for families pay a MLS rate of 1.25%.
- Tier 3. Those earning over $140,000 per year for singles and $280,000 per year for families pay a MLS rate of 1.5%.
Still have questions about the MLS?
Q: How is the MLS calculated in my tax return?
- A: You are asked how many days in the year you held private hospital cover, and you are not liable to pay the MLS for those days. The MLS is calculated on the number of days that you didn’t hold private hospital cover.
Q: If I have extras cover, is this enough to avoid paying the MLS?
- A: No, you must have hospital cover.
Q: I have insurance with an overseas fund. Does this exempt me from paying the MLS?
- A: No, you must have hospital cover with an Australian fund.
Q: If I suspend my hospital cover while I am travelling overseas, do I have to pay the MLS?
- A: Yes, you will have to pay the MLS for every day you don’t have hospital cover, including the days while your policy is suspended.
Q: Which part of my income determines my Medicare Levy Surcharge?
- A: Your income for MLS purposes includes your taxable income, fringe benefits and super contributions minus any net investment losses.
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Image source: https://www.humanservices.gov.au/customer/services/medicare/medicare-card