The Medicare Levy Surcharge (MLS) refers to a tax ranging from 1% to 1.5% levied on your income every year. The tax is applied on the high income earners and is aimed at pushing top earners into opting for a private health coverage option thereby relieving pressure off the public health care option.
It is important to be cognizant of the annual income thresholds within which these taxes will kick in. Currently, this stands at an income of more than $90,000. The rate of taxation for the Medicare Levy Surcharge is also dependent on the income threshold that an individual falls into.
The Medicare Levy Surcharge Thresholds
The tax is levied based on tiered system that is tied to the income thresholds of the taxpayer. The rate varies from 0% to 1.5% of your income. For singles, the MLS is 0% for an annual incomes of less than $90,000, 1% for an annual income ranging from $90,001 and $105,000; 1.25% for an annual income ranging from $105,001 to $140,000 and 1.5% for an annual income of more than $140,000.
For families, the rate is 0% for an annual income of $180,000 or less, 1% for annual income ranging from $180,001 to $210,000; 1.25% for an annual income ranging from $210,001 to $280,000 and a rate of 1.5% on annual income of more than $280,000.
How is the income threshold calculated?
The Australian Taxation Office (ATO) factors in various kinds of incomes and other factors when calculating the MLS income threshold and determining whether you will need to pay the surcharge. These include:-
- The taxable income: This is factored in and includes the net amount that is paid for the family trust distribution tax.
- Super contributions: Includes both the employer reportable super contributions and the deductible personal super contributions.
- Reportable Fringe benefits: Factors in all the fringe benefits that are listed on your PAYG summary.
- Spousal trust income: Your spouse’s share of a taxable trust’s net income is factored in.
- Total net investment losses: Incorporates all the net rental property losses as well as all the net financial investment losses.
What if you have a hospital cover?
In case you have an approved hospital cover that is provided by an Australian fund, then you will be exempt from the Medicare Levy Surcharge. In case you don’t have a private health insurance, you will be liable for the MLS if you are single and your annual taxable income for MLS purposes exceeds $90,000 or if you are a family and your annual taxable income for MLS purposes exceeds $180,000. To be exempt from the MLS if your income exceeds these thresholds, you must have a private health cover not just for yourself but also for your spouse and kids. If you and your spouse exceed the income threshold for MLS purposes, are covered by private health insurance policy but you haven’t taken a private health cover for your kids, both of you will have to pay the Medicare Levy Surcharge.
How Can You be Exempt from the Medicare Levy Surcharge?
If your annual income for MLS purposes is not more than $90,000(for singles) or $180,000 (for families or couples), then you are automatically exempt from the surcharge.
However, if your personal or family income exceeds the above thresholds, then the only way to exempt yourself from the MLS is by taking a private health insurance. For a family, this must cover everybody in the household including yourself, your spouse and kids.
To be eligible for an exemption, the health cover that you take must offer a private patient hospital cover and must be purchased from a registered Australian health fund. Additionally, the cover must also have a payable excess not exceeding $500 per year for an individual or $1000 for couples or families. To avoid the surcharge, you must also retain the right cover throughout the year.