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Medicare Levy Surcharge and Private Health Insurance Cover – A Review

August 19, 2020 by Alan Collett

The Medicare Levy Surcharge (MLS) is a levy paid by Australian tax payers who do not have private hospital cover and who earn above a certain income.

This blog discusses the circumstances when the MLS becomes payable and how private hospital cover can avoid the Surcharge.

MLS is designed to encourage individuals to take out private patient hospital cover and to use the private hospital system to reduce demand on the public Medicare system.

The MLS can impact a taxapayer and all dependents. 

For this purpose dependents include: 

  • A spouse; 
  • Children who are under 21 years of age; or 
  • Student children who are under 25 years of age.

A special definition of income (called income for MLS purposes) is used to determine if the MLS is payable, and the rate of MLS applied.

This income is different to taxable income.

The MLS rate of 1%, 1.25% or 1.5% is levied on:

  • Taxable income, plus
  • Total reportable fringe benefits, plus
  • Any amount on which family trust distribution tax has been paid.

If you have to pay the MLS, it is in addition to the basic Medicare Levy.

The base income threshold (under which you are not liable to pay the MLS) is:

  • $90,000 for singles
  • $180,000 for families.

You do not have to pay the MLS if your family income exceeds the threshold but your own income for MLS purposes was $22,801 or less.

Single parents and couples (including de facto couples) are subject to family tiers. For families with children, the thresholds are increased by $1,500 for each child after the first.

If you are a family with a combined income of more than $180,000 in the current financial year you must hold hospital cover for you, your partner, and your dependents to avoid the surcharge.

If your partner or one of your dependents is not covered, you will pay the surcharge.

You must meet one of the following requirements to avoid payment of the Medicare Levy Surcharge:

  • Your taxable income for MLS purposes is below the income threshold
  • Your taxable income for MLS purposes is over the income threshold and you have approved hospital insurance (as discussed below) for you and all of your dependents with a registered health insurer. Note that from 1st April 2019, the total yearly front-end deductible or excess on the policy can be no greater than $750 for singles and $1,500 for families/couples. (Prior to 1st April 2019, the maximum deductible or excess was $500 for singles or $1,000 for families/couples.)
  • You are normally exempt from the Medicare Levy because you are a prescribed person and you do not have any dependents. Your income level is not considered in this case
  • You are a high-income earner who had already purchased a hospital insurance product with a total yearly front-end deductible or excess greater than $500 for singles or $1,000 for families/couples, on or before 24 May 2000. In this case you will continue to be exempt from the surcharge as long as you maintain continuous membership under the same hospital treatment policy.

To be exempt from the surcharge, your hospital cover must be held with a registered health insurer and cover some or all of the fees and charges for a stay in hospital. 

The following types of health insurance do not provide an exemption:

  • General treatment cover without hospital cover
  • Overseas Visitors Cover or Overseas Student Health Cover
  • Cover held with non-registered insurers, such as international insurers. 

If you are from a country with a Reciprocal Health Care Agreement with Australia and you earn over the surcharge threshold you can avoid the surcharge by purchasing an approved hospital insurance policy.

Filed Under: Income Tax, Australian Tax Tagged With: medicare levy, surcharge, private health, insurance, MLS

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