About the Medicare Levy Surcharge
The Surcharge Explained
The 1% Medicare Levy Surcharge is a levy that higher income earners may have to pay in addition to the 1.5% Medicare levy paid* by most Australian taxpayers.
*In some cases people may be exempt from paying the 1.5% Medicare levy.
Who pays the Medicare levy Surcharge?
You generally must pay the surcharge if you are a higher income earner and do not have a private hospital insurance policy with the appropriate excess.
The additional 1% levy is charged on the number of days in the tax year that you have NOT held a private hospital insurance policy with the appropriate excess.
For example if you take a private hospital insurance policy on the 1st of August 2009, you will pay the levy for the 31 days that you did not have a private hospital insurance policy, the following 334 days of the tax year will be exempt from the levy. This exemption will continue whilst you hold a private hospital insurance policy with the appropriate excess.
Exemptions apply however to "prescribed persons". For more information contact the Australian Taxation Office, or consult a tax professional.
Who is a higher income earner?
For the tax year 2010/11 you are considered a higher income earner if you are a single person with an annual taxable income of over $77,000, or a couple or family with a combined taxable income of greater than $154,000. The family threshold amount of $154,000 increases by $1,500 for each dependent child after the first.
The table below illustrates how the surcharge is calculated for the 2010/11 tax year:
Single |
|
| TAXABLE INCOME | MLS TAX LIABILITY |
| $77,000 | nil |
| $77,010 | $770.10 |
Couple with no dependant children |
|
| TAXABLE INCOME | MLS TAX LIABILITY |
| $154,000 | nil |
| $154,005 | $1,540.05 |
Family with one dependant child |
|
| TAXABLE INCOME | MLS TAX LIABILITY |
| $154,000 | nil |
| $154,005 | $1,540.05 |
Family with 2 dependant children |
|
| TAXABLE INCOME | MLS TAX LIABILITY |
| $155,500 (threshold increases by $1,500) | $0 |
| $155,505 | $1,555.05 |
Family with 3 dependant children |
|
| TAXABLE INCOME | MLS TAX LIABILITY |
| $157,000 (threshold increases by $3,000) | $0 |
| $157,005 | $1,570.05 |
What is the appropriate excess?
The appropriate excess that has to be chosen to avoid the surcharge is:
- Equal to or less than $500 per annum for singles and
- Equal to or less than $1,000 for couples and families.
Who are dependants for surcharge purposes?
A dependant, in relation to the Medicare Levy Surcharge is someone whose maintenance you contribute towards, and they would be:
- Your spouse
- Any of your children who are under 21 years of age
- Any children who are students and are under the age of 25 years of age
iSelect recommends an alternative to paying the taxman
iSelect has private health insurance policies in selected states with annual premiums that may fall below the 1% you have to pay if you are a single person with a taxable income of for example $73,010 = $730.10 (surcharge payable) and likewise for relevant families/couples. These hospital policies may contain some exclusions and have some restricted benefits.
Transitional Arrangements
Changes were passed in the Australian Parliament for the tax year 2009/10 which increased the taxable income thresholds to their current levels of $73,000 and $146,000 respectively.
This meant that if you took out eligible hospital cover by 31 December 2009 and maintain it through to 30 June 2010 you would be considered to have had cover for the full 365 days from 1 July 2008 to 30 June 2009.
Extended benefits of taking out cover
When you purchase hospital insurance, not only are you covered for specified hospital services (please check your policy for details of services covered) that are able to help keep you out of those long queues for elective surgery (in a public hospital); but your policy may also contain full or emergency ambulance cover and other total health programs that are included as part of the hospital coverage. A cover for general treatment or (extras) services can further assist in maintaining a healthier you!
How to avoid those unpleasant surprises at tax time!
Don't wait until it is time to do your tax return only to learn that you have to pay the Medicare Levy Surcharge; do yourself a favour and purchase the appropriate level of hospital cover to avoid paying more tax than what you may otherwise need to.
To calculate your Medicare Levy Surcharge visit the to the Australian Taxation Office's Medicare Levy Calculator.
For further information about the Surcharge and whether it applies to you, we suggest you contact the Australian Taxation Office, or consult a tax professional.
Seek assistance to sort through the health insurance maze
Please call one of our trained consultants to discuss your needs and cover on 13 19 20 or get an online quote below.
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