What is the Medicare Levy Surcharge?

The Medicare Levy Surcharge is designed to encourage individuals to take out private hospital cover.

The Australian Government initiative is levied at Australian taxpayers who do not have an appropriate level of private hospital insurance and who earn above a certain income threshold.

It is designed to reduce the stress placed on the public Medicare system by encouraging individuals to use the private hospital system.

This is a levy that Australians must pay in addition to the Medicare Levy.

Your level of income is used to determine if you need to pay the Medicare Levy Surcharge and what rate you will be charged at.

As part of the 2016-17 Federal Budget, the Australian Government froze the indexing of the income thresholds until June 30, 2021.

People earning above the threshold amounts can avoid paying the Medicare Levy Surcharge by taking out an appropriate level of private hospital cover.

An appropriate level of cover is defined as a hospital policy that does not have an excess greater than $750 on a single policy or greater than $1500 on a couple, single parent or family policy.

How is my Medicare Levy Surcharge, calculated?

To calculate your income for Medicare Levy Surcharge purposes, the following items are considered:
  • Taxable income
  • Reportable fringe benefits
  • Total net investment losses
  • Reportable super contributions
  • If you have a partner, their share of the net income of a trust on which the trustee must pay tax and which has not been included in their taxable income
  • Exempt foreign employment income.
For example, Cindy is 35 years old, single and does not have the appropriate level of private hospital cover. Her taxable income for the 2018-19 financial year is $90,000.

When Cindy completes her tax return, she also declares that she has reportable fringe benefits of $20,000 and net investment losses of $7000.

Cindy’s total income for Medicare Levy Surcharge purposes is $117,000. This makes her a Tier 2 income earner for calculating the Medicare Levy Surcharge.

To calculate Cindy’s Medicare Levy Surcharge: $90,000 taxable income + $20,000 reportable fringe benefit X 1.25% = $1375.

What about if I have a partner or family?

If you have a partner or spouse, your combined income will be used to calculate your Medicare Levy Surcharge.

The base income threshold, under which you are not liable to pay the Medicare Levy Surcharge, is $90,000 for singles and $180,000 for families. However, you do not have to pay the Medicare Levy Surcharge if your family income exceeds this threshold but your own income for Medicare Levy Surcharge purposes is $21,980 or less.

If you are a family with a combined income of more than $180,000, 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.

If you do have to pay the Medicare Levy Surcharge, it will be included with the Medicare levy and shown as one amount on your assessment called “Medicare levy and surcharge”.

For families with children, the income thresholds increase by $1500 for each child after your first child. For Medicare Levy Surcharge purposes, your child is still a dependent if you are paying child support while the child does not reside with you.

For more information on the Medicare Levy Surcharge, visit www.ato.gov.au or privatehealth.gov.au
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