Some people may have been stung by the Medicare Levy Surcharge (MLS) over the last couple of years when it comes to tax time.
There is however a way to try and avoid the Medicare Levy Surcharge and in turn save yourself a fair amount of money.
Here is how:
What is the Medicare Levy Surcharge (MLS)?
The MLS is a Government tax charged to those who earn over certain amounts and do not have private health insurance hospital cover.
It was brought in to reduce the demand on the public health system by trying to encourage people to use the private hospital system. Up until this year, the MLS was charged at an annual rate of 1%, however now there is income testing to determine the different rates people will have to pay.
What are the 2012-2013 charges and income thresholds?
There are four categories which will determine the rate you need to pay for the MLS.
- For singles earning $84,000 or less, and couples/families earning $168,000 or less the surcharge is 0%
- For singles earning $84,001 -$97,000, and couples/families earning $168,001-$194,000 the surcharge is 1.0%
- For singles earning $97,001-$130,000, and couples/families earning $194,001-$260,000 the surcharge is 1.25%
- For singles earning $130,000+, and couples/families earning $260,000+ the surcharge is 1.5%
- For families with children, the thresholds are increased by $1,500 for each child after the first
Who does not have to pay the Medicare Levy Surcharge?
If you earn under the thresholds (less than $84K for singles and less than $168K for couples/families) you do not have to pay the surcharge. If you are a prescribed person without dependents you are usually exempt (from MLS and Medicare Levy).
You are also exempt if you were a high income earner who already has hospital insurance with excesses exceeding $500 for individuals and $1000 for couples on or before 24 May, 2000 (you must continue with this cover to stay exempt).
How to avoid paying the Medicare Levy Surcharge
If your income is within the Tier1-Tier3 category you can avoid paying the surcharge by having private health insurance hospital cover. You just need to make sure that your excesses or co-payments are no greater than $500 for singles and no greater than $1000 for couples/families.
An excess is the amount you will have to pay on admission to hospital, and a co-payment is a daily amount you will need to pay up to a maximum on entering hospital.
How does avoiding the Medicare Levy Surcharge save you money?
If you were an individual earning $130,001 a year and you did not have hospital cover you will have to pay $1,950 in tax for the MLS. You can get basic level hospital cover with most health funds well under $1000 which puts solid cash back into your pocket.
Did you know? The Medicare Levy and Medicare Levy Surcharge are two different taxes. Most Australians have to pay the Medicare levy which is taxed at 1.5% of your income!