The Medicare Levy Surcharge was introduced to reduce demand on the public health system, and encourage higher income earners to purchase private health insurance. We’ve put together this quick guide for anyone who’s not completely up-to-date on the finer points of the Medicare Levy Surcharge, why we have it, and whether or not you have to pay it.
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What is the Medicare Levy Surcharge?
The Medicare Levy Surcharge (MLS) is an additional charge applied to Australian taxpayers who have an annual income over a certain amount and do not have private hospital cover.
Changes were recently made to apply the Medicare Levy Surcharge to all high income earners, meaning families earning more than $180,000 per year and childless individuals earning more than $90,000 per year.
The Medicare Levy Surcharge was designed to reduce the burden on the public hospital system by encouraging Australians with enough income to sign up for private health insurance and rely more on the private health system.
Note that there is a difference between the Medicare Levy and Medicare Levy Surcharge. The Medicare Levy is applied to all taxpayers, and the Surcharge is paid on top of the Levy.
How is the Medicare Levy Surcharge calculated?
Previously calculated at a flat rate of 1% of an income earners taxable annual income, the current levy rates are based on a multi-tier model, which takes the disparity between different people’s earnings into account.
| Tier | Singles Annual Income | Couples/Families Annual Income | Medicare Levy Surcharge |
| Base Tier | $90,000 or less | $180,000 or less | 0% |
| Tier 1 | $90,001 to $105,000 | $180,001 to $210,000 | 1.0% |
| Tier 2 | $105,001 to $140,000 | $210,001 to $280,000 | 1.25% |
| Tier 3 | More than $140,001 | More than $280,001 | 1.5% |
Source: ATO. Information current as of March 2017.
While the surcharge rates, and the 0.25% increases in the surcharge across tiers may seem rather insignificant, it’s worth noting that 1.25% of, say, $110,000 is $1,375. That’s not spare change!
Note that the income figure used to determine whether or not you pay the Medicare Levy Surcharge (and how much you pay) is not simply your taxable income. It’s your taxable income, plus a handful of other considerations ranging from relatively simple (super contributions) to more complex (a spouse’s income from a tax-eligible trust). For the full list of things that go towards your income for Medicare Levy Surcharge purposes, check the ATO website.
How do you avoid paying the Medicare Levy Surcharge?
You can avoid paying the Medicare Levy Surcharge by having private hospital cover in place. Not just any health cover, though: you will need to take out health cover with an excess of $500 or less for individuals, or $1,000 or less for families/couples (ATO). And it needs to be hospital cover.
If you are in the market for a policy, check out our comparison table below which provides a snapshot of the current low premium policies available in the market, with links direct to the providers website. Please note this is based on a single male seeking hospital cover in NSW. You can try this tool for yourself here.
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Extras cover, which is the cover you take out for goods and services such as physiotherapy, dental work, and optical/glasses, is not enough to make you exempt from the surcharge. Of course, extras cover is still a good thing to have anyway, if you can afford it.
The Medicare Levy Surcharge is paid every financial year (runs from 1 July to 30 June) when you fill in your tax return. So if you take out private hospital cover after July 1 of a particular financial year, then the surcharge will only be charged on the period in which there wasn’t cover.
For example, if cover is taken out on 1/10/2016, you would only be covered for 273 days and the surcharge would be calculated on the 93 days during which there was no cover.
Medicare Levy Surcharge FAQs
Below, we address some of the frequently asked question (FAQs) about the Medicare Levy Surcharge.
What’s so special about July 1? Can’t I take out health cover at any time?
You’re right, nothing’s stopping you from taking out a private health insurance at any point in the year.
But July 1 marks the start of the financial year, and if you don’t have hospital cover by then, you’ll be hit with the Medicare Levy Surcharge for the period between July 1 and whenever you take out a Hospital Cover policy. Every day you’re without cover is another day of extra tax you could’ve avoided paying.
Will swapping between health funds affect the tax I pay?
As mentioned above, you’re only taxed for days that you’re without cover, so the only way swapping health funds would lead to you being taxed would be if there was a gap between your policies.
You won’t be charged the Medicare Levy Surcharge if you arrange your new policy to begin the day your previous one ends (or within 30 days of it ending).
Will suspending my health cover result in me paying the Medicare Levy Surcharge?
If you’re earning above the Medicare Levy Surcharge threshold and suspend your health cover, you’ll be taxed for however long it takes you to reinstate your policy or arrange for a new one.
Do non-Australian residents have to pay the Medicare Levy Surcharge?
If you’re a citizen of the UK, Sweden, Finland, Norway, Belgium, The Netherlands, Slovenia, Malta, Italy, Ireland, or New Zealand (reciprocal healthcare agreement countries), and you earn over the Medicare Levy Surcharge threshold but don’t have a hospital cover policy, you may have to pay the Medicare Levy Surcharge.
Overseas Visitors Health Cover (OSHC or working visa health cover) is not considered a sufficient degree of health cover to afford you exemption from the Medicare Levy Surcharge.
Citizens from the rest of the world can complete a Medicare Entitlement Statement to exempt themselves from paying the Medicare Levy Surcharge.
Want to avoid the surcharge but aren’t sure which policy to go with?
If you’re desperately trying to dodge the Medicare Levy Surcharge, but either don’t know what you need from a health insurance policy, or aren’t sure where to start your search for health insurance, we’ve got you covered on both fronts!
If you don’t know what you need, we’ve got plenty of articles on the site to help you consider your options when creating your own checklist for a policy. If you’re not sure where to start looking, finding a health insurance policy suited to your individual needs is easy as paying a visit to CANSTAR’s health insurance comparison tool:
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