Medicare Levy and Medicare Levy Surcharge – what’s the difference?

This time of year we receive a lot of questions about the Medicare Levy and Medicare Levy Surcharge. So what are they? And what is the difference between the two? Let us explain…

The Medicare Levy is an amount you pay in addition to the income tax you pay on your taxable income. According to the Australian Taxation Office (“ATO”), this levy is to help fund some of the costs of Australia’s public health system known as Medicare. The Medicare Levy is 2% of your taxable income and is paid by basically all taxpayers with a taxable income that exceeds $26,000 (or $41,089 if eligible for Seniors and Pensioners Tax Offset). For employees, the PAYG tax withheld from their wage will generally cover the Medicare Levy.

The Medicare Levy Surcharge (MLS) is separate to the Medicare Levy. Depending on your personal circumstances, you may need to pay the MLS in addition to the Medicare levy. The MLS rate is between 1% to 1.5% of your Adjusted Taxable Income (ATI) and applies if your ATI exceeds $93,000 (singles) or $186,000 (families) (plus $1,500 for each dependent child after the first one). ATI consists of taxable income + total reportable fringe benefits + net investment losses (e.g. a rental property loss) + reportable super contributions (including both salary sacrificed and deductible super contributions). For employees, the PAYG tax withheld from their wage will not generally be enough to cover the MLS, in which case they may find they have an amount to pay to the ATO when they lodge their tax return.

You can avoid having to pay MLS if you hold an appropriate level of private health insurance. i.e. hospital cover with an excess of $750 (singles) or $1,500 (couples) or less.  Every member of your family (dependents) must be covered by the appropriate level of private health insurance, even if only one member’s income is over the MLS threshold, otherwise all members of the family are deemed not covered by the ATO and will be subject to MLS. If you only had an appropriate level of cover for part of the tax year, the MLS will be apportioned based on the number of days you were covered.

The thresholds and rates are often indexed each year, however both the Medicare Levy and MLS are calculated when we complete your tax return. If you need more information on Medicare Levy or MLS, please reach out to the team at HQB Accountants Auditors Advisors.

– Renee Crane

Posted 20.09.2024

This article is compiled as a helpful guide for your private information and is subject to copyright. We suggest that you do not act solely on the basis of material contained in this article because items are of general nature only and may be liable to misinterpretation in particular circumstances. We recommend that our advice be sought before acting on any of these crucial areas.