Are You Paying More Tax Than You Need To? Let’s Talk Medicare Levy Surcharge.
Written by Brooke Fenwick - Partner.
With EOFY just around the corner, this one comes up a lot in client conversations and honestly, it's one of those things that catches people off guard every single year.
We're talking about the Medicare Levy Surcharge.
What even is it?
Most Australians are familiar with the Medicare Levy… that standard 2% that gets taken out of your income to fund the public health system. That's just part of life.
The Medicare Levy Surcharge is different. It's an additional tax (on top of the standard levy) that applies to higher income earners who don't hold eligible private hospital cover.
And it's not a small amount. The surcharge is calculated at 1%, 1.25% or 1.5% of your income for MLS purposes, depending on your income level.
Who does it apply to?
If you're single and your income for MLS purposes is above $97,000, you're in the zone. For families, the threshold is $194,000 combined (plus $1,500 for each dependent child after the first).
Here's where the rates land:
Singles:
Up to $97,000 — no surcharge
$97,001–$113,000 — 1%
$113,001–$151,000 — 1.25%
$151,001 and above — 1.5%
Families:
Up to $194,000 — no surcharge
$194,001–$226,000 — 1%
$226,001–$302,000 — 1.25%
$302,001 and above — 1.5%
The thing most people don't realise
This is the bit that trips people up.
Extras Cover (things like dental, physio, optical) does not count. At all. To avoid the surcharge, you need eligible private hospital cover specifically.
In many cases, basic hospital cover may cost less than the surcharge itself, making it worth comparing the numbers before EOFY. Here's the kicker: in a lot of cases, a basic hospital cover policy can actually cost less than what you'd pay in surcharge. So you'd be paying more in tax, for literally nothing in return.
Extras Cover (doesn't count)
Hospital Cover (this is what you need)
The other thing worth knowing
The final Medicare Levy Surcharge liability is calculated when your tax return is lodged, which means it can come as an unexpected surprise if you haven't planned for it. Which means if it applies to you and you weren't expecting it, it can come as a pretty unwelcome surprise in the form of a reduced refund or an unexpected tax bill.
If your income or personal circumstances changed during the year- new relationship, separation, change in cover- your surcharge position may have changed too. Worth checking before you lodge.
What should you do?
If you're not sure whether the MLS applies to you, now is genuinely the right time to review it. Yep, before you lodge your return, not after!
A quick EOFY check could save you money, or at least mean no nasty surprises.
If you've got questions or want to talk through your situation, reach out to the team. We're here.
This is general advice only and does not take into account your financial circumstances, needs and objectives. Before making any decision based on this document, you should assess your own circumstances or seek advice from your financial adviser and seek tax advice from your accountant.