The Medicare Levy refers to an additional payment that taxpayers in Australia need to pay on top of their income taxes. The levy has been imposed on the taxpayers to support Australia’s public health system. Typically, your employer includes the levy, which is 2% of your taxable income.
At this point, readers should keep in mind that a standard Medicare Levy is different from the Medicare Levy surcharge. The Medicare Levy Surcharge (MLS) is an additional tax on top of the standard 2% Medicare Levy. Not all taxpayers need to pay MLS, since the Australian government wants the high-earning citizens to pay this additional levy.
The purpose of MLS is to encourage the high earners to opt for private hospital insurance, reducing the strain on the public healthcare system. The surcharge may range from 1% to 1.5%, depending on the income of a person. However, there are a few additional criteria, discussed below.
- Singles earning above $93,000 annually should pay a surcharge if they do not have private health insurance coverage.
- Couples and families are also required to pay a surcharge if the combined family income exceeds $186,000.
MLS Percentages and Payments
Understanding the MLS percentages and payments is crucial for those who need to pay this surcharge. The percentage slabs are as discussed in the following section.
A. MLS for Singles
Income Threshold | MLS Percentage | Minimum MLS Payment |
$93,000 or less | 0% | 0% |
$93,001 – $108,000 | 1% | $930 |
$108,001 – $144,000 | 1.25% | $1,350 |
$144,001 or more | 1.5% | $2,160 |
B. MLS for Couples
Income Threshold | MLS Percentage | Minimum MLS Payment |
$186,000 or less | 0% | 0% |
$186,001 – $216,000 | 1% | $1,860 |
$216,001 – $288,000 | 1.25% | $2,700 |
$288,001 or more | 1.5% | $4,320 |
Tips to Avoid Medicare Levy Surcharge
If you come under the high-earning category bracket, paying the Medicare Levy surcharge is essential as per the taxation regulations in Australia. However, there are a few strategic ways of avoiding paying this levy surcharge. Let’s find out those strategies for additional savings.
1. An Appropriate Private Hospital Cover
The best way to avoid the MLS is to invest in the appropriate private sector hospital insurance plan. It is noteworthy that the basic hospital coverage insurance plan is less than the MLS that one has to pay. Therefore, it is always better to invest in a good health insurance policy that offers basic or custom private hospitalisation coverage.
2. Manage Your Taxable Income
You can manage your taxable income to avoid paying the Medicare Levy surcharge. Consulting an accountant will be helpful in this regard, especially when you have multiple income sources. Maximising tax deductions is a proven way of avoiding paying MLS. Some other methods are salary sacrificing in pension plans, strategic investment planning, etc.
3. Family Situation Consideration
The MLS threshold is significantly higher for couples compared to singles. Therefore, your relationship status can affect your MLS obligations. Considering an early marriage is an excellent way of dodging the Medicare Levy surcharge. Furthermore, having dependent children after the first child increases the MLS threshold by $1500 for each child.
4. Partial Exemptions
A partial Medicare Levy surcharge exemption, also termed as a half exemption, offers an exemption on a part of the levy. This would happen only when you have private hospital coverage for part of the year. For example, you have purchased an insurance plan in the middle of the year. In this case, you are eligible to obtain a partial exemption on the MLS.
5. Look for Special Exemptions
In addition to the partial exemption, there are a few special exemptions on the Medicare Levy surcharge. Irrespective of their age, certain groups can enjoy the MLS levy.
- People under 18 years of age with no dependents are eligible to obtain a full exemption on the MLS.
- Foreign residents maintaining their Medicare eligibility in Australia can also obtain a full exemption from the levy.
- Some people hold specific medicare levy exemption certificates. In such cases, they can get full or partial levy exemption.
MLS vs Private Health Insurance (PHI): Which Is Better?
So, should you continue paying the Medicare Levy Surcharge (MLS) or invest in Private Health Insurance (PHI)? People who have recently crossed the MLS threshold must be confused about MLS and PHI. Let’s imagine that your annual income is $100000. In this case, you need to pay 1% of your income as MLS. Therefore, the amount becomes $1000, which will typically be collected by your employer during the salary disbursement.
On the other hand, the cost of a basic PHI ranges from $850 to $1200, depending on various conditions as imposed by the providers. With an annual income of $100000, you can save up to $150 per year when you choose private health insurance over the Medicare Levy surcharge.
Pros and Cons of PHI
Investing in private health insurance rather than paying the MLS is a cost-effective decision. However, you should also keep in mind that the PHI also has some pros and cons. In the following section, let’s explore those benefits and shortcomings at a glance.
Pros
- Investing in PHI helps avoid the MLS
- Obtain excellent private hospital treatment coverage
- Opportunity to qualify for government rebate
- Skip the waitlist in the public hospitals
Cons
- Out-of-pocket expenses for many treatments
- Unnecessary for young and healthy people
- Additional coverage cost may surpass the MLS
Bottom Line
The Medicare Levy surcharge is not mandatory for everyone, though it is a tax imposed on people who earn beyond a threshold. Through the MLS, the Australian government aims to encourage people to visit private hospitals instead of putting more burden on the public hospitals. On the other hand, it collects a good amount of tax from rich taxpayers and invests the money into the well-being of the public health sector.
On the other hand, people should invest in private health insurance if they want to avoid paying MLS. Investing in private health coverage policies brings more peace of mind during medical emergencies. Nevertheless, it can help you save some money when you choose not to pay taxes through the MLS. Choosing the right private health insurance policy can be challenging.
Compare Your Health is the best place to find top health insurance providers in Australia. You can compare different health coverage plans and pick the right one according to your budget and requirements. People interested or keen on investing in private health insurance policies can reach out to our experts for assistance. Find the best guidance from our experts in choosing the best health insurance policy that covers your medical expenses and protects you from paying the MLS.