Medicare Levy

Ever wondered what that sneaky ‘2% medicare levy’ thing means in your tax return?

When you are looking at the individual marginal tax rates (being the rates at which you get taxed as an individual or sole trader), it states under the box “the above rates do not include the medicare levy of 2%”. But when we send you your tax return, there it is, adding to the tax payable amount.

The medicare levy goes towards funding Australia’s public health system, so we’re on board with that. It is 2% charged on your total taxable income.

Let’s say you make $60,000 taxable income (maybe a mix of wages, profits from sole trader activities, and a handful of dividends), that means the levy for you would be about $1,200. You can estimate what it will be by using the ATOs calculator here.

If you are employed, the amount that your employer withholds from your salary should include the medicare levy. 

If you are employed, or if you have additional taxable income (like distributions from a trust, or profits from your sole trader business), then you might have a little extra to pay at the end of the year. 

Exemptions

The 2% medicare levy may not apply to you if you fall into an exemption category:

• Meet certain medical requirements
• Are a foreign resident (for tax purposes)
• Are not entitled to medicare benefits

If that is you, then you claim your exemption in your tax return. In some situations you might need a special exemption statement. Keep that on record. 

Reductions

For some people the levy won’t be charged, or the amount will be reduced because of the amount of income they earn. This medicare levy reduction is for low-income earners.

0% levy: You may be eligible to have the levy reduced to 0% if you are a single person with taxable income of less than $23,226 (or a senior with less than $36,705).

<2% levy: If you are single and earn between $23,226 and $29,033 (or are a senior with between $36,705 and $45,881) then the levy will be between 0% and 2%.

There are also some reductions available if:

• Your taxable income is above $29,032
• You had a spouse that passed away during the year
• You are entitled to an invalid and invalid carer tax offset in respect of your child
• You had sole care of one or more dependant children

Learn more here about family income reductions.

Medicare Levy Surcharge (MLS)

Some lucky people get to pay even more than the 2%! This is the medicare levy surcharge. Despite having a similar name to the medicare levy, it’s a bit different. This gets charged when you, your spouse or your dependents earn over a threshold and do not have sufficient private patient hospital cover.

The surcharge kicks in when:

• You, your spouse or dependents don’t have sufficient private hospital cover
• And made $90,000 as singles (or $180,000 as a couple)
• (threshold goes up $1,500 for each dependent after the first one)

So, if you are a single babe with $100,000 income and no private health, then the surcharge applies. If you are in a couple and one of you makes $50,000 but the other makes $150,000, and you don’t have cover, then you pay the surcharge too. 

But, you don’t pay it if the family income is over $180,000 but your income alone was under $23226. 

Basically this means that at a certain point (of income) it becomes more cost effective to pay for private health. The idea is that the government wants to encourage people to get private health cover to reduce pressure on the public health system. The government is saying “you can afford it, so isn’t it better to get the private health care benefits than pay us more tax?” 

The MLS rate is between 1-1.5% (on top of the levy of 2%). It is calculated on your taxable income, plus any reportable fringe benefits or family trust distributions. 

Info to give your accountant

• Your income and expenses info 
• Plus we need to know about your spouse and their income 
• Finally we need to know if you have private health cover, 
• and if yes, see the statement from your private fund showing the ‘days of sufficient hospital cover’, particularly if the surcharge would otherwise apply to you

What is the sufficient level of cover? For singles, an appropriate level of cover must have an excess of $750 or less. Couples or families must have an excess of $1,500 or less.

Generally you don’t have to do anything in your tax return for this - as long as you are including your spouse the ATO will automatically apply the correct levy and surcharge if needed.