Will You Avoid the Medicare Levy Surcharge?
What is the Medicare Levy Surcharge?
The Medicare Levy Surcharge (MLS) is levied on Australian taxpayers who do not have private hospital cover and who earn above a certain income. The MLS is a Federal Government initiative to encourage individuals to take out private hospital cover, and where possible, to use the private hospital system to reduce the demand on the public system.
Who does the surcharge apply to?
The MLS covers you and your dependents. Providing you contribute to their maintenance (including child support payments), your dependents are (1) your spouse; (2) any of your children who are under 16 years of age; or (3) any of your student children who are under 25 years of age.
How is the MLS calculated? 
The surcharge is calculated at the rate of 1% of taxable income. It is in addition to the Medicare Levy of 1.5%, which is paid by most Australian taxpayers. The MLS is imposed on individuals earning over the threshold who do not have an appropriate level of hospital insurance.
What are the current income thresholds?
In the 2009/10 financial year, the income thresholds were $73,000 for individuals and $146,000 for couples and families. This year (2010/11), the thresholds are:
- $77,000 for individuals;
- $154,000 for couples; and
- $154,000 for families; however the family threshold increases by $1,500 for each dependent child after the first dependent child (i.e. the threshold for a family with three dependent children would be $157,000)
So if you earn over these thresholds (e.g. an individual earning $77,001) and do not hold private hospital cover, you will incur the MLS and subsequently have to pay an additional 1% in tax.
Who won't have to pay the surcharge?
You will not have to pay the Medicare Levy Surcharge if:
- your taxable income is below the income threshold of $77,000 for a single person or $154,000 for a couple or family;
- your taxable income is over the income threshold but you have hospital insurance for you and all of your dependents with a registered health insurer, like HIF;
- you are normally exempt from the Medicare Levy because you are a prescribed person and you do not have any dependents;
- you are a high-income earner who had already purchased a hospital insurance product with a front-end deductible or excess greater than $500 for singles or $1,000 for families/couples, on or before 24 May 2000 (in this case you will continue to be exempt from the surcharge as long as you maintain continuous membership under the same hospital treatment policy).
Use our handy online tax savings calculator to see if you will incur the Medicare Levy Surcharge.
Take out private hospital cover now and pay less tax
Did you know that having private health insurance can actually save you money? If you are likely to incur the MLS this year, it can actually be more cost effective to take out HIF hospital cover as a number of our hospital cover options are actually cheaper than the additional tax you'll be forced to pay.
For example, if you are an individual earning $80,000 per year and you don't have hospital cover, the MLS means that you will have to pay an additional $800 in tax (1% of your annual income). However, if you take out HIF GoldStarter Hospital for just $422.80 per year, you'll not only have peace of mind knowing that you're covered if the worst happens but you'll also avoid paying the MLS, resulting in a saving of $377.20.
Which HIF hospital cover option will save you money?
The table illustrates which hospital covers could help you to avoid paying extra tax.
