.png)
We get A LOT of questions about these two gems. The Medicare Levy and the Medicare Levy Surcharge are key components of Australia's healthcare funding system. These levies ensure that the Medicare program, which provides access to free or subsidised healthcare services, is adequately funded. While they may sound similar, they serve different purposes and apply under different circumstances.
Medicare Levy
The Medicare Levy is a standard tax that most Australian taxpayers must pay, and it is calculated as a percentage of their taxable income. For the 2024 financial year, this levy is set at 2% of a person’s taxable income.
However, the Medicare Levy does not apply to everyone in full, and exemptions or reductions may apply depending on personal income and circumstances.
Who Pays the Medicare Levy?
Full-rate Medicare Levy: Most individuals earning above the threshold are required to pay the full 2% levy.
Reduced-rate Medicare Levy: Individuals with lower incomes may be eligible for a reduced rate. For example, for single taxpayers, the income threshold is $24,276 in the 2023-2024 financial year, while families have a higher combined income threshold.
Exemptions: Individuals with low incomes or those who qualify for a specific exemption (such as certain foreign residents or people with certain medical conditions) may not have to pay the Medicare Levy at all.
Example:
Alex earns a taxable income of $80,000. The Medicare Levy for Alex is 2% of $80,000, which equals $1,600.
Sarah, however, earns $23,000. As she falls below the income threshold, she may either be fully exempt or pay a reduced rate.
Medicare Levy Surcharge (MLS)
The Medicare Levy Surcharge (MLS) is an additional levy imposed on individuals and families who earn above a certain threshold and do not have adequate private hospital insurance. This levy is designed to encourage higher-income earners to take out private health cover, reducing pressure on the public Medicare system.
The MLS is not a flat rate and varies depending on your income and family status. It can range from 1% to 1.5% of your taxable income.
Income Thresholds for MLS:
For the 2023-2024 financial year:
Individuals earning over $93,000.
Families earning over $186,000.
These income thresholds increase if you have more than one dependent child, and the MLS rate increases for higher income brackets.
Who Pays the MLS?
Without private hospital insurance: If your income is above the threshold and you do not have private hospital cover, you’ll have to pay the MLS.
With private hospital insurance: If you hold adequate private hospital cover, the MLS does not apply to you.
Example:
James earns $120,000 per year and does not have private health insurance. Based on his income, he is required to pay an additional 1% in the form of the Medicare Levy Surcharge. Therefore, James would pay an extra $1,200 (1% of $120,000) on top of the standard Medicare Levy.
2. Lisa earns $200,000 and also lacks private health insurance. She falls into the higher MLS rate of 1.5% and would need to pay an additional $3,000 (1.5% of $200,000).
Key Differences Between the Medicare Levy and MLS:
Medicare Levy | Medicare Levy Surcharge |
Applies to most Australian taxpayers. | Applies only to higher-income earners without private health insurance. |
Flat rate of 2%. | Rate varies between 1% and 1.5%. |
Exemptions and reductions apply based on income or specific circumstances. | No exemptions if above the income threshold without private cover. |
Why Does the Medicare Levy Surcharge Exist?
The MLS is meant to reduce the burden on the public healthcare system by encouraging those who can afford it to take out private health insurance. It serves both as a financial incentive to support the private health sector and as a means to reduce congestion in public hospitals.
How to Avoid the Medicare Levy Surcharge
If your income is over the threshold and you do not want to pay the MLS, you can avoid it by taking out private hospital insurance. This will exempt you from the surcharge, even if you rarely use the insurance, as long as your coverage is adequate. Please Note / Disclaimer Notice: The decision to take out private health insurance should be based on your personal healthcare needs and financial situation. This article is intended to provide general information on the Medicare Levy and Medicare Levy Surcharge and should not be taken as financial advice. We recommend consulting with a financial advisor or healthcare professional before making decisions regarding private health insurance. MJA Business Solutions takes no responsibility for individual decisions based on this information.
For further information, visit the ATO’s official pages:
Comments