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Last Updated on 26 September 2018

Medicare Levy and Medicare Levy Surcharge: What’s the Difference?

It’s easy to become confused by the array of terms used to describe different aspects of the Medicare health care system. If you’re scratching your head wondering what the difference between the Medicare levy and the Medicare levy surcharge is, here’s some help sorting it out — and avoiding the surcharge, if you qualify for it.

Medicare Levy Explained

The Medicare health scheme gives all Australians access to health care. For that reason, most Australian taxpayers fund the scheme through taxpayer contributions. That’s where the Medicare levy comes in. To help fund the Medicare scheme, most Australian taxpayers pay a Medicare levy of 2% of their taxable income. The levy is automatically deducted from your taxable wages by your employer.

Exemptions from the Medicare Levy

Some Australian taxpayers are exempt from paying some or all of the Medicare levy. Foreign residents, residents of Norfolk Island, those not entitled to Medicare benefits, or those who meet certain medical requirements may not be required to pay the full levy. Those entitled to an exemption must claim the exemption status on their tax returns.

Additionally, the Medicare levy is reduced or removed for those who meet certain income thresholds. For instance, low wage earners may have their levy reduced or removed; in the 2015-2016 tax year, singles making less than $26, 668 and families making less than $45,001 qualified for a reduced levy. Keep in mind that these thresholds change for seniors, and that family size compared to taxable income may also affect the status of levy reduction or removal.

The Medicare Levy Surcharge Explained

Government initiatives to encourage the purchase of private health insurance by higher earners means that some Australian taxpayers must pay a Medicare Levy Surcharge in addition to the standard Medicare Levy. For the 2015-2016 tax year, residents who made $90,000 as a single person with no dependents, or $180,000 as a couple with no children/one dependent child (plus $1,500 per each additional dependent child) and who did not carry appropriate private insurance cover were responsible for the levy.

The levy for the 2015-2016 tax year was between 1% and 1.5% of taxable income, reportable fringe benefits, total net investment losses and reportable super contributions.

Avoiding the Medicare Levy Surcharge

Even if you’re a higher earner, you can avoid paying the Medicare Levy Surcharge by taking out private Hospital cover. In order to avoid the MLS, you will need to purchase hospital cover with an excess of $500 or less per year (if you are a single person) or $1,000 or less per year (if you are purchasing for a couple or a family).  You must purchase the cover from one of the approved health funds.

Disclaimer: The above information is correct and current at the time of publication.

Disclaimer: The above information is correct and current at the time of publication

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June 16, 2018 at 10:33 am

Thanks for the excellent post

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