HEADLINES Published July15, 2019 By Hannah Smith

What is the Australian Medicare Levy Surcharge?

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The Medicare levy is getting a lot of press lately. But what exactly is the Australian Medicare levy surcharge? How is it related to the Medicare levy that's been in place for years? And how can you avoid it?

An Introduction to the Medicare Surcharge 

The surcharge was designed specifically to encourage people to take out private health insurance and reduce demand on the overloaded public healthcare system. This would help lessen the burden put on hospitals and lead to shorter wait times for those who can't afford private health coverage. 

The Medicare surcharge affects people with a salary over 90ka year and families earning more than 180k. The financial threshold increases by $1,500 per year for every child you have after your first. The surcharge in these cases ranges from a 1 to 1.5%, which you'll have pay if you're not covered by a registered, private health insurance Plan. The 1.5% tax kicks in at 140kof annual income if you're single and a little over 280k for married couples without children. 

What many don't realise is that the Medicare levy surcharge uses a different definition of taxable income. It doesn't just apply to your earned income. The levy surcharge is also levied on fringe benefits, investment losses and super contributions. Failing to know this can lead some to be hit with a higher levy surcharge than they thought they would be paying. 

Does the Medicare Levy Surcharge Replace the Medicare Levy? 

The Medicare levy surcharge doesn't eliminate the Medicare Levy. The Medicare Levy, a roughly 2% tax most Australians pay, remains in full effect. It's owed by almost all working Australians that earn more than around 27kper year. Seniors qualify for a tax offset that means they can earn up to nearly 43k before they pay the Medicare Levy. 

How to Avoid the Surcharge 

You can sign up for Private Health Insurance to avoid the Medicare levy surcharge. This eliminates the minimum tax you'd pay as a single in addition to your income taxes. If you're married, having private health coverage eliminates $1,800, additional tax off your billper year. And remember, that's the minimum bill you'd be stuck with. Know that you have to have the right level of hospital cover or you don't get out of the levy surcharge.

You must have the right level of hospital coverage, and be signed up with a registered private health fund. For example, the fund cannot have an annual front-end deductible or excess greater than $500 per year for a single and $1,000 dollars for a couple or family. Furthermore, all members of the family have to be covered by the private health coverage. You can't sign up for health insurance for yourself and exempt your spouse's income from the levy surcharge. Shop around for good private health insurance so that you can find a bargain, because private insurers vary in how much they charge and what they cover.  

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