Learn about the Medicare Levy Surcharge (MLS) Your Guide to the Medicare Levy Surcharge

It may seem that the only difference between the Medicare Levy and the Medicare Levy Surcharge is a single word, but it goes much deeper than that. While most Australians pay the Medicare levy, the Medicare Levy Surcharge is avoidable.

This guide will explain in detail the difference between the two, and help you understand how health cover can save you money on your taxes.

Medicare Levy vs. Medicare Levy Surcharge

Medicare is Australia’s public health care system, and it’s funded in part by taxpayers. The Medicare levy is a tax of up to 2% of your taxable income, but it may be lower—or nonexistent—if you earn less than the threshold.

The Medicare Levy Surcharge, or MLS, is an additional tax on top of the Medicare levy. It applies to certain taxpayers who don’t hold an appropriate level of hospital cover, and the amount of tax you’re liable for is also income-based.

The MLS is in place to encourage Australians to take out hospital insurance. Private health insurance provides taxpayers a greater range of choice and flexibility in their medical needs and reduces strain on the public system.


MLS Glossary

Here are some of the terms you may encounter in this guide.

  • Base income thresholds: The income levels at which the MLS applies to individuals or families
  • Dependant: Any person you maintain financially; can be a spouse or child up to age 25.
  • Excess: If you need to make a claim, you will pay an excess, which is an out of pocket cost you pay in order for your fund to cover the claim.
  • Income for MLS purposes: Total income used to determine your MLS rate; not the same as your taxable income.
  • Medicare Levy: Australian tax levy of up to 2% that contributes to partial funding of Medicare.
  • Medicare Levy Surcharge (MLS): Additional surcharge on the Medicare Levy for those over the MLS income thresholds who do not hold eligible hospital cover.

What Kind of Hospital Cover Do I Need?

First, let’s look at what it means to have the ‘appropriate level’ of hospital cover. This is cover that you purchase from a registered health insurer for hospital treatment and surgery. Singles must have an excess of $500 or less on their policy, while couples and families must have an excess of $1,000 or less.

Extras cover, travel insurance, and overseas hospital cover do not qualify as an appropriate level of hospital cover, and will not exempt you from the MLS. If you’re unclear about whether or not your cover meets the requirements, contact your insurer.

To avoid the MLS, you, your spouse, and your dependants must hold an appropriate level of hospital cover. Also note that if you suspend your cover for any reason, you will not be exempt from the MLS for the period of suspension.



Who Has to Pay the Medicare Levy Surcharge?

If you earn more than the MLS income threshold and do not hold an appropriate level of hospital cover, you will have to pay the Medicare Levy Surcharge. If you hold an appropriate level of hospital cover, you do not have to worry about the MLS, regardless of your income level.


How is My Family Status Defined for MLS Purposes?

Before you can determine how much you may owe for the MLS, you need to know your family status for MLS purposes.

If you contributed financially to a dependant at any point during the year, you’re considered to be part of a family. This is true even if the dependant earned their own income. Dependants must have been Australian residents at the time and can be the following:

An ex-spouse does not count as a dependant, even if you are paying spousal support. On the other hand, children are considered dependants if you pay child support, even if they don’t live with you.


Defining your MLS Income

The Medicare Levy Surcharge is an income-based surcharge, but it is calculated based on specific factors to identify your income for MLS purposes. Your MLS income determines your MLS rate and how much you’ll owe if you don’t have hospital cover.

If you have a spouse, your MLS rate is based on your combined income for MLS purposes.

Income for MLS purposes includes:

  • Taxable income
  • Total net investment losses
  • Exempt foreign employment income
  • Reportable super contributions
  • Reportable fringe benefits
  • Spouse’s share of net income of a trust on which trustee must pay tax (if not reported in taxable income)

How Much is the MLS?

  • 0%
  • 1%
  • 1.25%
  • 1.5%

The rate is applied to the total of your taxable income, reportable fringe benefits, and amount on which family trust distribution tax was paid.

You will likely have to pay the MLS for any time during the year when you did not hold eligible hospital cover and your income was over the threshold.

The MLS income tiers are as follows, and will stay the same until 30 June 2021.

Singles Families MLS Rate
Threshold $90,000 or less $180,000 or less 0%
Tier 1 $90,001 to $105,000 $180,001 to $210,000 1%
Tier 2 $105,001 to $140,000 $210,001 to $280,000 1.25%
Tier 3 $140,001 or more $280,001 or more 1.5%
*After the first child, your family’s income threshold goes up by $1,500 for each MLS-dependant child.

*If your family is over the threshold but you earn $21,655 or less, you are exempt from the MLS.

How Can I Avoid the MLS?

The most straightforward way to avoid paying the MLS is to purchase hospital cover. The benefits of hospital cover go far beyond avoiding tax liabilities. With hospital cover, you’ll have the ability to be treated as a private patient in either a public or a private hospital. You’ll get to choose your doctor and treatment location, and you may be able to access a private room when needed.

In addition to the sense of comfort that comes with hospital cover, you may also be eligible for a government-funded rebate. The private health insurance rebate applies to hospital, extras, and ambulance policies, and is usually reflected as a reduction on your premium.

Your Income Single or family? Your family’s combined income Do I have to pay?
Under $90,000 Single N/A NO
$90,000 and over Single N/A YES
Under $180,000 Family Under $180,000 NO
$21,655 or less Single Over $180,000 NO
$21,656 or more Family Over $180,000 YES

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