Started 1st July 2023, the Australian Government has implemented changes to the Medicare Levy Surcharge (MLS) and the Australian Government Rebate on private health insurance premiums. These changes were intended to encourage more Australians to take out private health insurance.

What are the Key Changes?

  • Increase in MLS Income Thresholds: The income thresholds for the MLS will rise. This means that more people will be able to earn a higher income before being required to pay the surcharge. For singles, the threshold will increase from $90,000 to $93,000 annually. For couples and families, it will go from $180,000 to $186,000 annually.
  • Increase in Rebate Tiers: The income thresholds for the Australian Government Rebate will also increase. This means that people with private health insurance may be eligible for a higher rebate to help cover the cost of their premiums. The thresholds will increase by approximately $3,000 for individuals and $6,000 for couples and families.

The Medicare Levy vs. The Medicare Levy Surcharge

It’s crucial to grasp the distinctions between these two charges:

  • Medicare Levy: A 2% tax on your taxable income that funds Australia’s public health system. Most people pay this unless they earn under $23,226 annually.
  • Medicare Levy Surcharge (MLS): A tax levied upon those earning above certain thresholds who lack private hospital cover. It aims to promote private health insurance and lessen the strain on the public system.

How Does the MLS Affect You?

If you earn over the new income thresholds and don’t have private hospital cover, you’ll be subject to the MLS. The MLS is calculated at 1%, 1.25%, or 1.5% of your annual income, depending on your income bracket.

Examples of MLS Calculations:

  • Singles: Those earning $95,000, $110,000, or $150,000 would owe $950, $1,375, and $2,250 respectively.
  • Couples/Families with one child: Those earning $190,000, $225,000, or $300,000 would owe $1,900, $2,812, and $4,500 respectively. For each additional Medicare-covered child, the threshold increases by $1,500.

It’s often cheaper to get private hospital cover than to pay the MLS, and you also gain the benefits of private healthcare.

Important Notes:

  • Your net income after tax deductions impacts your MLS calculation.
  • Changes in personal circumstances throughout the year can affect your MLS.
  • Consult an accountant if you have questions about calculating your MLS.

What if You Recently Turned 31?

Be mindful of the Lifetime Health Cover (LHC) loading. This adds a 2% surcharge to premiums for every year you delay getting hospital cover past your 31st birthday. The LHC aims to encourage early uptake of hospital cover. You have until the 1st July following your 31st birthday to avoid the loading.

Do You Need to Take Action?

Typically, no action is needed, as health funds usually apply the rebate directly. However, ensure your health fund has accurate information about your income bracket to avoid potential shortfalls in your tax return.

Additional Considerations

Recent research indicates that many Australians plan to use their tax refunds to cover household bills. This could present issues if you were claiming a higher rebate due to an inaccurately reported lower income tier.pen_spark

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