If you’ve ever opened your tax return and thought, “Why on earth are there two Medicare amounts?”, you’re definitely not the only one. Although they sound confusingly similar (thanks, ATO 🙃), the Medicare Levy and the Medicare Levy Surcharge (MLS) are actually two separate taxes with completely different purposes.
Medicare Levy
The Medicare Levy is essentially Australia’s way of helping fund our public health system. Almost everyone pays it, and it’s usually 2% of your taxable income unless you’re eligible for a reduction or exemption. It applies pretty broadly and is calculated directly from your taxable income.
Medicare Levy Surcharge (MLS)
The MLS is an extra tax added on top of the Medicare levy. It only kicks in if you:
earn a higher income, and
you and ALL your dependants don’t have private patient hospital cover.
Your surchargeable income (detailed below) is used to determine whether you exceed the relevant thresholds, starting at $97,000 for singles and $194,000 for families. If you’re over those limits and you don’t have private hospital cover, the MLS applies. The surcharge starts at 1% and increases based on higher income tiers.
Think of surchargeable income as your taxable income plus a few extra things the ATO counts when checking if you should pay the Medicare Levy Surcharge, such as Reportable fringe benefits and amounts on which family trust distribution tax has been paid.
If you earn more than the threshold after adding these items together and don’t have private hospital cover, the surcharge may apply.
Simple Explanation
Think of it like this:
Medicare Levy = the basic ticket
Pretty much everyone chips in 2% of their income so we can use Medicare. Some people on lower incomes or without Medicare access may pay less or nothing.Medicare Levy Surcharge = a penalty fee
If you earn a lot and don’t have private hospital cover, the tax system says, “Hey, you can afford it, so we’ll charge you extra.” That’s the surcharge.
Now that you have a solid understanding of both the Medicare Levy and the Medicare Levy Surcharge, it should be much easier to see how they impact your overall tax position and any decisions around private health cover.
We hope this helps demystify Medicare but, if anything’s still unclear or you’d like to talk it through further, just let us know, we’re always happy to help. 😊