Did you know that earning over $97,000 as a single person could cost you extra tax if you don’t have private health insurance?
That’s where the Medicare Levy Surcharge (MLS) comes in. This additional tax hits higher earners who skip private hospital cover, and it’s designed to ease pressure on Australia’s public health system.
If you’re wondering how to dodge this surcharge and keep more money in your pocket, this guide explains everything you need to know.
Our experienced tax accountants in Melbourne have this exclusive insight into the rules, thresholds, and steps to avoid the MLS in simple terms. Let’s check them out!
What Is The Medicare Levy Surcharge?
The Medicare Levy Surcharge is an extra tax for people earning above a certain income who don’t have private hospital insurance.
Unlike the standard Medicare Levy, which most Australians pay at 2% of their taxable income, the MLS targets higher earners specifically.
It applies if you’re single with an income over $97,000 or part of a family earning more than $194,000 in the 2024-25 financial year.
For families, the threshold rises by $1,500 for each dependent child after the first. The surcharge ranges from 1% to 1.5% of your income, depending on how much you earn.
This tax isn’t based on your regular taxable income alone. Instead, the Australian Taxation Office (ATO) uses a special calculation called “income for MLS purposes.”
This includes your wages, reportable fringe benefits, super contributions, and even some investment income.
Introduced by the government, the MLS encourages people to take out private health coverage, reducing the load on Medicare.
Who Needs To Pay The Medicare Levy Surcharge?
The MLS applies to:
- Singles with an income exceeding $97,000 (2024-25 financial year)
- Couples or families with a combined income exceeding $194,000
- For families with children, the threshold increases by $1,500 for each dependent child after the first
The MLS is calculated as a percentage of your total taxable income, reportable fringe benefits, and any amount on which family trust distribution tax has been paid.
The percentage increases with your income level, ranging from 1% to 1.5%.
Current Medicare Levy Surcharge Rates (2024-25)
For Singles:
| Income Threshold | MLS Percentage | Minimum MLS Payment |
|---|---|---|
| $97,000 or less | 0% | 0% |
| $97,001 – $113,000 | 1% | $970 |
| $113,001 – $151,000 | 1.25% | $1,412 |
| $151,001 or more | 1.5% | $2,265 |
For Couples/Families:
| Income Threshold | MLS Percentage | Minimum MLS Payment |
|---|---|---|
| $194,000 or less | 0% | 0% |
| $194,001 – $226,000 | 1% | $1940 |
| $226,001 – $302,000 | 1.25% | $2,825 |
| $302,001 or more | 1.5% | $4,530 |
How Much Could The MLS Cost You?
The cost depends on your income tier. For a single person earning just over $97,000, the minimum MLS payment is $970 at the 1% rate. At the top tier, over $151,000, it jumps to at least $2,265 with the 1.5% rate.
Families earning above $302,000 could pay $4,530 or more. These are minimums – the actual amount rises with your income.
To get a precise figure, use the ATO’s online calculator or chat with tax agents in Melbourne for tailored advice.
Strategic Ways To Avoid The Medicare Levy Surcharge
1. Take Out Appropriate Private Hospital Cover
The most straightforward way to avoid the MLS is to purchase appropriate private hospital insurance.
Tax consultants often highlight that the annual cost of basic hospital cover is typically less than the MLS you would otherwise pay.
When selecting a policy, ensure it provides appropriate private patient hospital cover as defined by the government.
Tax accountants in Melbourne professionals frequently note that having extras covered alone is not sufficient to avoid the MLS. The coverage must specifically include hospital coverage that meets government requirements.
2. Manage Your Taxable Income
Working with accountants can help you explore legitimate strategies to manage your taxable income.
These might include:
- Maximising tax deductions
- Salary sacrificing into superannuation
- Timing the receipt of income
- Strategic investment planning
Accountants in Melbourne can provide personalised advice based on your specific financial situation to help keep your income below the relevant thresholds when appropriate.
3. Consider Your Family Situation
For couples, the MLS threshold is significantly higher than for singles. The best tax accountant in Melbourne professionals can advise on how your relationship status affects your MLS obligations. Additionally, if you have dependent children, remember that the family threshold increases by $1,500 for each child after the first.
4. Partial Exemptions
If you take out private hospital cover partway through the financial year, you may be eligible for a partial exemption from the MLS for the period you were covered. Tax agents in Melbourne can help you calculate the exact amount of MLS you might still need to pay.
5. Check For Special Exemptions
Certain groups are exempt from paying the MLS regardless of income, including:
- People under 18 years of age with no dependents
- Those with specific Medicare levy exemption certificates
- Foreign residents who maintain their Medicare eligibility
Is Private Health Insurance Worth It?
When deciding whether to take out private hospital cover, think about:
- The MLS you would be liable for if you did not have cover.
- The yearly premium of an appropriate private hospital cover.
- The benefits of being treated in a private hospital.
- Any tax benefits or rebates for which you could be eligible.
For many Australians on higher incomes, the financial decision is simple: the private hospital cover would be cheaper than the MLS that would otherwise be paid.
Need Help Avoiding The Medicare Levy Surcharge?
Are you unclear about the Medicare Levy Surcharge or about how to avoid it altogether?
KPG Taxation can help! Our tax accountants in Melbourne will simplify what your income is and assist you in selecting the best health insurance for your circumstances to maximise your savings.
We promise best possible tax refunds and the best service for clients across Australia and we have helped thousands of clients do their tax.
