Written by Joshua Malin
Reviewed by Lana Hambilton
Last updated 13/09/2023
It can be confusing to work out what the Medicare Levy Surcharge is, why you may need to pay it and how it’s different from the Medicare levy. We can help with all these questions and more!
- The Medicare Levy Surcharge is an additional tax for high-income earners who don’t hold an appropriate level of hospital cover
- Depending on your income and where you live, you may be able to save money by taking out a hospital cover policy and avoiding the MLS moving forward
- The Australian Government uses a slightly different definition of “income for Medicare Levy Surcharge purposes” than you might be used to
- Even if you’re a high-income earner, you may be exempt from the MLS If you meet certain criteria
What is the Medicare Levy Surcharge?
The Medicare Levy Surcharge (MLS) is a surcharge imposed on Australian taxpayers who earn over $93,000 as a single or $186,000 as a couple/family each financial year but don’t hold an eligible private hospital insurance policy throughout the financial year. The surcharge is intended to ease pressure on the public health system by encouraging high-income earners to take out private hospital cover.
You may incur a surcharge of 1%, 1.25% or 1.5% depending on your annual taxable income for MLS purposes. You’ll be subject to the MLS for any period during a financial year that you don’t hold suitable private hospital cover.
Your MLS is calculated based on the following criteria:
- Your family status
- Number of dependants (if applicable)
- Individual or combined annual income
- Whether you hold an eligible private hospital cover
Expert tips on the Medicare Levy Surcharge
Our health insurance expert, Lana Hambilton, has some expert tips on the Medicare Levy Surcharge and private health insurance.
Consider your needs and avoid junk policies
Carefully consider what level of hospital cover will be suitable for your needs. While it’s tempting to just get the cheapest option so you can avoid the MLS, many of these policies are nicknamed “junk policies” as they can provide next to no coverage.
Maximise your tax savings
It’s a good idea to hold hospital cover for the entire financial year to ensure maximum tax savings. If your income exceeds the MLS threshold and you didn’t hold hospital cover for the entire financial year, you’ll still incur the MLS for each day of that tax year that you did not hold an eligible hospital policy.
You may also need to pay LHC
If you don’t have hospital cover by 1 July following your 31st birthday, there’s also the Lifetime Health Cover (LHC) loading to consider. LHC increases your hospital premium from the age of 30 by 2% for every year you don’t have private hospital insurance from this date. Depending on your age, you can either stop this loading from increasing or avoid it all together by taking out hospital cover before the cut-off.
How much is the Medicare Levy Surcharge?
Medicare Levy Surcharge income thresholds
The first MLS income threshold is $93,000 for singles and $186,000 for couples and families. The MLS is charged as a percentage of your total income for MLS purposes – this means that the higher your income is over the threshold, the more you will have to pay.
The table below illustrates the MLS rate that higher-income earners will pay if they don’t hold an eligible private hospital cover for the full financial year.1
|Income thresholds||Base tier||Tier 1||Tier 2||Tier 3|
|Singles||Under $93,000||$93,001 – $108,000||$108,001 – $144,000||$144,001+|
|Families *||Under $186,000||$186,001 – $216,000||$216,001 – $288,000||$288,001+|
|Source: Australian Tax Office — Medicare Levy Surcharge. Updated July 2023|
* For families with dependant children, thresholds increase by $1,500 for each child born after the first. Families include couples, de facto couples and single-parent families. Family income thresholds are based on the combined income of both partners.
What is considered ‘income’ when it comes to the Medicare Levy Surcharge?
In addition to what you earn from employment, other factors can determine your income for MLS purposes. When these are taken into consideration by the Australian Taxation Office (ATO), you could end up paying a higher surcharge than what your income alone might stipulate. The ATO considers the following when calculating the surcharge:1
- Your taxable income
- Any reportable fringe benefits
- Total net investment losses
- Exempt foreign employment income
- Your partner’s share of the net income of a trust account which has not otherwise been included in their taxable income
- Reportable super contributions.
According to the ATO website, you aren’t required to pay the MLS if your family income exceeds the threshold, but your individual income for MLS tax purposes is less than $23,365. For example, if your partner’s income was $161,000 and your income was $20,000, and neither of you held valid private health insurance, only your partner would be required to pay the MLS.
For MLS purposes, you’re considered to be part of a family if you have a partner or child/dependant (who are Australian residents) for any part of the financial year. If you earn over the threshold, each member of the family will require valid private patient hospital cover for the fully financial year to avoid the surcharge.
Avoiding the MLS
How to avoid the Medicare Levy Surcharge
If you earn over the income threshold, you will require a valid private hospital cover policy for the entire financial year to avoid paying the MLS at tax time. For private hospital cover to be valid, it must be taken out using a registered Australian health fund. All the funds on our site are registered, but some private health insurance policies on the market won’t exempt you from the surcharge.
Some health insurance policies that won’t exempt you include:
- A standalone extras cover policy (i.e. not combined with eligible hospital cover)
- Cover provided by insurers that aren’t registered in Australia
- Most policies offered to overseas visitors
- Hospital policies with an excess greater than $750 for singles and $1,500 for families/couples.
Am I exempt from the Medicare Levy Surcharge?
You may have an exemption from paying some or all the surcharge for the financial year if you:
- Aren’t entitled to Medicare benefits
- Are a foreign resident for tax purposes
- Are a blind pensioner
- Have obtained sickness allowance from Centrelink
- Can claim medical treatment on a Veterans’ Affairs Repatriation Health Card or through defence force arrangements.
Medicare Levy Surcharge vs private health insurance
You may wonder if it’s worth taking out private health insurance to avoid the MLS. Depending on your income and personal circumstances, you could actually save money by taking out private health insurance. Plus, you get the benefit of being covered for some of your private healthcare costs.
|Example income||MLS percentage||Total MLS|
|Health insurance policy||Average annual cost of hospital insurance2|
|Source: Based on data from privatehealth.gov.au, current as of June 2023. This is the average cost for single-only hospital policies with an excess of $750 that exempts you from the MLS. This does not include any rebates, discounts or loadings.|
As you can see, a person with a yearly income of $120,000 could potentially take out a Bronze hospital policy for less than the cost of the MLS they would otherwise pay. Keep in mind, this is based on the average cost of hospital insurance policies across Australia, so it’s possible you could find a policy at a significantly lower price. For example, depending on your state of residence, you may be able to get a Basic hospital policy for as little as $456.6 per year before any rebates, discounts or loadings.2
What’s the difference between the Medicare levy and the Medicare Levy Surcharge?
While the Medicare Levy Surcharge applies to those who earn over the MLS threshold without private hospital cover, the Medicare levy is something most taxpayers pay regardless of whether they hold private hospital insurance. The purpose of the Medicare levy is to support the public health system, while the surcharge is designed to encourage high-income earners to take out private cover, reducing their burden on the public system.
The Medicare levy is a surcharge of 2% in addition to your income tax. Like the MLS, the Medicare levy is paid when you file your tax returns. If your taxable income is less than $23,365, you may be exempt from the Medicare levy.3
Keep in mind that if your income is over the MLS threshold and you don’t hold valid private health insurance, you’ll pay both the Medicare levy and the surcharge.
Meet our health insurance expert, Lana Hambilton
As Head of Health, Life, and Income Protection Insurance at Compare the Market, Lana Hambilton is passionate about simplifying the comparison process and educating Australians about the value and benefits private health insurance can offer and the critical role it plays in our medical system. She firmly believes that health insurance provides choice in one of the most important aspects of life – our health – and has experienced countless cases over the years where peace of mind comes through the ability to choose when, where, and who will treat you.
Lana has 15 years’ experience in the health insurance and insurance comparison industries. She’s also a Board Member of the Private Health Insurance Intermediaries Association.
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