If you’re one of the many Australians keeping a close eye on your tax bill, there’s some good news on the horizon—especially if you’re hovering near the Medicare Levy Surcharge (MLS) threshold.
The Australian Taxation Office (ATO) is set to increase the income thresholds for the MLS from 1 July, giving singles and families a little more breathing room before that extra tax kicks in.
But what does this mean for you, and should you be rethinking your private health insurance strategy? Let’s break it down.
What’s changing with the Medicare Levy Surcharge?
For the third year running, the ATO is bumping up the income thresholds that determine who pays the MLS.
From 1 July, the singles threshold will rise from $97,000 to $101,000, and the family threshold will jump from $194,000 to $202,000.
That’s an extra $4,000 for singles and a whopping $8,000 for families before the surcharge applies.
This is a welcome change for many, as it means you can earn a bit more before the taxman comes knocking for that extra 1–1.5 per cent surcharge (on top of the standard 2 per cent Medicare levy).
For families, this could mean a significant saving, especially as the cost of living continues to climb.
Why does the Medicare Levy Surcharge exist?
The MLS is designed to encourage higher-income earners to take out private hospital cover, easing the pressure on the public health system.
If you earn above the threshold and don’t have eligible private hospital insurance, you’ll be hit with the surcharge. The rate you pay depends on your income, ranging from 1 per cent to 1.5 per cent.
It’s important to note that the MLS is separate from the standard Medicare levy, which is 2 per cent of your taxable income and applies to most Australians.
Should you get private health insurance to avoid the surcharge?
This is the million-dollar question (or, at least, the several-hundred-dollar one). According to Belinda Raso, director at Tax Invest Accounting, now is the time to weigh up your options.
‘These decisions can cost or save you thousands of dollars over the next financial year,’ she says.
With private health insurance premiums on the rise, it’s worth crunching the numbers to see what makes sense for your situation.
Finder’s research shows the average single pays about $165 per month for health insurance, or $1,980 a year.
Basic policies are cheaper, averaging $78.36 per month ($940.32 a year), but may not offer the level of cover you want.
If you’re only taking out insurance to dodge the MLS, a basic hospital policy might do the trick—but make sure it meets the ATO’s requirements.
Raso points out that if you don’t want private health insurance, that’s your choice—but you’ll be paying the surcharge for nothing in return. ‘So you’re just paying a tax for no reason, you may as well pay for something,’ she says.
How is your income calculated for the MLS?
Here’s where it gets a bit tricky. The income used to determine your MLS liability isn’t just your taxable income. It also includes:
- Reportable fringe benefits (which are grossed up)
- Reportable super contributions (like salary sacrifice)
- Net investment losses added back in
This means you could be over the threshold even if your taxable income is under it. Many people get caught out by this, so it’s worth double-checking your total income before making any decisions.
What if you’ve already hit the threshold this year?
Unfortunately, if you’ve already crossed the threshold for this financial year and didn’t have private hospital cover, you can’t backdate a policy to avoid the surcharge.
You’ll be liable for the MLS for every day you weren’t covered. The best you can do is get your ducks in a row for next year.
Who does the family threshold apply to?
The family threshold isn’t just for traditional families. It covers:
- Couples with or without children
- Single-parent households
If you’re in a couple or have dependents, your combined income is what matters. And remember, you need hospital cover for everyone in your family to avoid the surcharge.
Is private health insurance worth it?
This is a personal decision and depends on your health needs, financial situation, and attitude towards risk.
Some people prefer to pay the surcharge and stick with the public system, while others value the peace of mind and extra options that come with private cover.
If you’re only just over the threshold, a basic policy might be cheaper than the surcharge. But if you’re well over, or if you want more comprehensive cover, it’s worth shopping around.
Compare policies, check what’s included, and don’t be afraid to switch providers if you find a better deal.
What should you do now?
- Review your income (including all the extras the ATO counts)
- Compare the cost of the MLS with the cost of private hospital cover
- Decide what’s best for your health and your wallet
- If you’re close to the threshold, consider your options before 1 July
Your turn:
Have you been caught out by the Medicare Levy Surcharge before? Do you think private health insurance is worth it, or do you prefer to pay the surcharge? Share your experiences and tips in the comments below—your story could help someone else make a smart decision this tax time!
Also read: New ATO rules could cost you more in just weeks—are you ready?
