Private health insurance & tax rebates: understand what the Medicare Levy Surcharge is, why you may need to pay it, and how it’s different from the Medicare levy.

We understand people may be thinking about cancelling private health insurance in these challenging times. There are some things you should consider first, like whether you’ll need to pay the Medicare levy surcharge. If you’re wondering about the difference between the Medicare levy and the Medicare levy surcharge or which you need to pay, the ATO has prepared some great advice in the below article….

The private health insurance rebate is an amount the government contributes towards the cost of your private health insurance premiums.

The rebate is income tested which means your eligibility depends on your income for surcharge purposes. If you have a higher income, your rebate entitlement may be reduced, or you may not be entitled to any rebate at all.

If you are eligible for the rebate, you can claim the rebate either:

  • through your private health insurance provider – your private health insurance provider will apply the rebate to reduce your private health insurance premiums
  • when you lodge your tax return – as a refundable tax offset.

So let’s break it down so you can make an informed decision…

What’s the difference between the Medicare levy and the Medicare levy surcharge?

The Medicare levy is a compulsory levy that helps fund Australia’s public health system.  Your employer will withhold a small amount each pay to cover the levy.  You can use our Medicare levy calculator to work out your Medicare levy payable.

The Medicare levy surcharge (MLS) is an extra charge (on top of the Medicare levy) designed to encourage people earning higher incomes to take out private hospital insurance.  The MLS is calculated when you lodge your tax return, so you may get a tax bill if you’re not exempt.

Do I have to pay the Medicare levy?

Your Medicare levy is reduced if your taxable income is below the threshold.  In some cases, you might not have to pay the levy at all.  If your taxable income is above the threshold, you may still qualify for a reduction based on your family taxable income.

I have a medical exemption:

You may be eligible to claim a full or half medical exemption if you:

  • are a blind pensioner
  • receive sickness allowance from Centrelink
  • are entitled to full free medical treatment for all conditions under Defence Force arrangements or the Veterans’ Affairs Repatriation Health Card (Gold Card).

I’m not an Australian resident:

If you’re a foreign resident for:

  • the full year – you can claim a full exemption from the Medicare levy
  • part of the year – you can claim a full exemption for that period if:
    • you did not have any dependants for that period, or
    • all your dependants were in an exemption category for that period.

I’m not entitled to Medicare benefits:

You’re exempt from paying the Medicare levy if you:

  • were a temporary resident and didn’t have any dependants or they were all in an exemption category for that period
  • don’t ordinarily live in Australia and didn’t have any dependants or they were all in an exemption category for that period
  • weren’t an Australian citizen

In order to claim an exemption you must apply for and receive a Medicare Entitlement Statement from Services Australia before you lodge your tax return. If you don’t have the exemption before you lodge, your claim may be disallowed and you’ll be charged the Medicare levy.

If you’re entitled to the exemption and haven’t claimed it, you may still be able to claim by lodging an amendment after you receive your Medicare Entitlement Statement.

I have private health insurance but was charged the Medicare levy surcharge. Why?

If you earn more than the MLS income threshold, you’ll be exempt from paying the MLS as long as you have an appropriate level of private hospital insurance. Private patient hospital insurance is provided by registered health insurers for hospital treatment in Australia.

An ‘appropriate level of cover’ differs depending on your situation. You must have:

  • an excess of $750 or less for a policy covering only one person, or
  • an excess of $1,500 or less for all other policies.

General cover, also known as ‘extras’, isn’t private patient hospital cover for the purposes of MLS.  Neither is travel insurance or cover from overseas funds.

If you have further queries, please check out the ATO website here or chat to your Highview accountant during your tax appointment.