Whether you’re new to Australia or just new to handling your own taxes, it’s important to take the time to learn about the Medicare levy and how it’ll affect you and your taxes going forward. In Australia, there is a robust public health system that offers benefits to all Australians, known as Medicare. The levy, and accompanying surcharge, are what helps to fund that health system. High-earners who make over a certain amount will, in many cases, also be asked to contribute more through a surcharge, though there are some exemptions. If you want to know more about the Medicare levy, keep reading to find out more about what it is, how much it is, and whether or not you can expect to have to pay it.
What is the Medicare levy?
The Medicare levy is what helps to fund Australia’s public health system. The levy is 2 percent of your taxable income, as defined by Australian law. The levy is collected by the same mechanism as income tax, and your employer will typically withhold an amount to cover the Medicare levy from your paychecks. The specific amount of your personal levy obligation is calculated when you file your income tax returns.
There are some narrow categories that are exempt from paying the levy. There are three primary exemption categories that, if met throughout the year, would relieve a filer of their Medicare levy obligation. Foreign residents, those who meet certain medical requirements, and those who are not entitled to Medicare benefits are all exempt from paying the annual levy.
How can you avoid paying the Medicare levy surcharge?
Not everyone has to pay the Medicare levy surcharge, but if you make over a certain income and haven’t purchased an appropriate level of private hospital cover, you may have to pay it come tax season. There isn’t a set dollar amount for the surcharge. Rather, it’s based on your taxable income.
If you’re a single person who makes over $90,000, your Medicare levy surcharge will be equal to 1 percent of your taxable income. If you make more than $105,000, your rate will be 1.25 percent. Finally, you will pay a surcharge of 1.5 percent if you make over $140,000. The numbers for couples differ slightly, with the 1 percent rate beginning at $180,000. Couples who make $210,000 will pay 1.25 percent and couples that make over $280,000 will pay 1.5 percent.
There are a few ways you can become exempt from the Medicare levy surcharge. The program was initially designed to encourage high-income families to purchase private hospital cover in order to ease the burden on the public health system. The ATO generally requires a hospital policy with an excess of $750 or less for singles and $1,500 for couples. General over or extras over is not considered adequate for being exempt from the levy.
The Medical levy and the Medicare levy surcharge are two different things. While most Australians are obligated to pay the levy, with limited exceptions, the surcharge is exclusively for high-earners without private hospital cover. While some families think that they can save some money by not purchasing private hospital cover and paying the Medicare levy surcharge, you’d be surprised by how much 1 percent of your income really is. It’s often more logical to invest in an appropriate level of private hospital cover and enjoy the benefits that go along with it so you can avoid the surcharge entirely. No matter what you choose to do with your health coverage, it’s important to make sure you have a clear understanding of your obligations when it’s time to pay your taxes.