One of the components of your tax statements at the end of each financial year is the often less understood and obscure ‘Medical Levy’. Here is a brief description of what this actally means, how much it costs the taxpayers and how you can keep a check on this particular aspect.
Medicare gives Australian residents access to health care. It is partly funded by taxpayers who pay a Medicare levy of 2% of their taxable income.
Your Medicare levy is reduced if your taxable income is below a certain threshold. In some cases you may not have to pay the levy at all.
If you don’t have private hospital health insurance, you may have to pay the Medicare levy surcharge (MLS) in addition to the Medicare levy. This depends on your income for MLS purposes.
If you do have an appropriate level of private hospital health insurance, you won’t have to pay the MLS, and depending on your income you may be eligible for the private health insurance rebate. This rebate is an amount the government contributes towards the cost of your private hospital health insurance premiums.
The Medicare levy and MLS and any reductions are calculated from information provided in your tax return.
Medicare levy exemption
You may be exempt from paying the Medicare levy if you meet certain medical requirements, are a foreign or Norfolk Island resident, or you are not entitled to Medicare benefits.
If you have any dependants, you need to consider their circumstances as well as your own to determine if you qualify for an exemption.
If you qualify for an exemption you need to tell us on your tax return.
Medicare levy surcharge
The Medicare levy surcharge (MLS) is levied on Australian taxpayers who do not have an appropriate level of private hospital insurance and who earn above a certain income.
It is designed to encourage individuals to take out private hospital cover, and where possible, to use the private hospital system to reduce demand on the public Medicare system.
The MLS is payable in addition to the Medicare levy.
We use a special definition of income (called income for MLS purposes) to determine whether you are liable to pay the MLS, and the rate you will have to pay. This is different to your taxable income.
The base income threshold (under which you are not liable to pay the MLS) is $90,000 for singles and $180,000 for families. However, you do not have to pay the MLS if your family income exceeds the threshold but your own income for MLS purposes was $21,335 or less.
If you do have to pay the MLS, it will be included with the Medicare levy and shown as one amount on your notice of assessment called Medicare levy and surcharge.
For Income thresholds for 2015–16, 2016–17 and 2017–18 – CLICK HERE
Medicare levy reduction for low-income earners
Your Medicare levy is reduced if your taxable income is below a certain threshold. In some cases you may not have to pay the levy at all. The thresholds are higher for seniors and pensioners. If your taxable income is above the thresholds, you may still qualify for a reduction based on your family taxable income.
Can I qualify for a Medicare levy reduction?
In 2015–16 you do not have to pay the Medicare levy if your taxable income is equal to or less than $21,335 ($33,738 for seniors and pensioners).
You will pay only part of the Medicare levy if your taxable income is between $21,335 and $26,668 ($33,738 and $42,172 for seniors and pensioners).
What if I don’t qualify for a Medicare levy reduction?
In 2015–16 if you are single with no dependants and your taxable income is over $26,668 ($42,172 for seniors and pensioners), you do not qualify for a Medicare levy reduction.
You may still qualify for a reduction based on your family taxable income.
If you do not qualify for a reduction in the Medicare levy, you may still qualify for a Medicare levy exemption.
Private health insurance rebate
The private health insurance rebate is an amount the government contributes towards the cost of your private hospital health insurance premiums.
This rebate is income tested, which means your eligibility to receive it depends on your income. If you have a higher income, your rebate entitlement may be reduced, or you may not be entitled to any rebate at all.
If you or your family do not have an appropriate level of private hospital insurance cover, and your income for Medicare levy surcharge (MLS) purposes is above a certain threshold, you will be required to pay the MLS. The rate of MLS you pay depends on your income for MLS purposes. This applies unless you (and your dependents if you have them) are exempt from paying the Medicare levy.
Most people claim the private health insurance rebate as a reduction in the amount of private health insurance premiums they pay to their insurer. Alternatively, it can be a refundable tax offset when you lodge your tax return.
The rebate percentage is adjusted on 1 April each year.
PAY without Private Hospital Cover – $900 You could pay an extra $900 tax to cover the MLS (Based on annual taxable income of $90,001) Versus SAVE with a Hospital Basic cover with some extras – $879.20 You could save on tax with hospital cover.
Digressing a bit it is noteworthy to mention here about the Lifetime Health Cover (LHC)
LHC is an Australian Government initiative designed to encourage people to take out hospital cover earlier in life and to maintain cover. If you are a new migrant to Australia, then you have until the later of 1 July following your 31st birthday or the first anniversary of your full Medicare registration to take out private hospital cover without incurring a Lifetime Health Cover loading. If the latter applies to you, your Lifetime Health Cover base day is the 12 month anniversary of your registration for full Medicare benefits (i.e. when you are eligible for a blue or green Medicare card). If you miss your Lifetime Health Cover base day, you will have to pay 2% more for each year you are aged over 30 when you take out private health insurance. That is some serious money over a period of ten years!
How does it affect you? If you don’t have hospital cover before 1 July following your 31st birthday or as a new migrant, the first anniversary of your full Medicare registration, you could pay an additional 2% for hospital cover every year you delay – up to a maximum of 70%. This extra cost will remain in place for 10 continuous years.
Lifetime Health Cover loading examples:
31? No cover? – LHC loading is 2% You could pay: $40 extra per year.
That’s $400 over 10 years! 35? No cover? – LHC loading is 10% You could pay: $200 extra per year. That’s $2000 over 10 years! (Numbers are based on hospital cover that costs $2,000 a year. No rebate applied.) If you were aged 39 when you migrated and did not get a private cover within a year of getting a Medicare Card then you would end up paying additional 18% for ten years!!