Common question: “Why am I paying Medicare Levy if I have private health insurance?”

It is important to note that Medicare Levy and Medicare Surcharge are two different things. Although we often refer to this part of the tax system under the blanket term of ‘Medicare’ – they are indeed 2 distinct parts of our tax system.

In Summary:

Medicare Levy

– Medicare is the scheme that gives Australian residents access to health care. To help fund the scheme, resident taxpayers pay a Medicare levy.

How much is this Levy?: 1.5% of your Taxable Income

How is this paid?: Accounted for by your employers as part of your pay OR added to your tax bill when you prepare your Individual Tax Return.

How to reduce it? You can’t! All taxpayers are subject to pay the Medicare Levy unless your income is below the Medicare threshold ($21,750 for Individuals and $36,701 for families, not subject to SATO or Pensioner Offsets)

Medicare Surcharge

– Surcharge is payable if you or your dependants (including your spouse, even if they had their own income) did not have an appropriate level of private patient hospital cover for the whole of 2010–11 and your income for Surcharge purposes was above the relevant thresholds.

What are the thresholds?: $77,000 for singles and $154,000 for families within the 2010/11 financial year. N.B Family threshold increases where you have more than 2 children.

How much is this Surcharge?: 1% of the combined total of Taxable Income + Reportable Fringe Benefits + Amount on which family trust distribution has been paid

How is this paid?: Surcharge is added on by the ATO upon lodgement of your Individual Tax Return (but estimated by your accountant or e-tax, when preparing your Return).

How to reduce it if your over the relevant threshold? Have adequate private health insurance! Re-evaluate your private health insurance stance as soon as possible to prevent surprises when preparing your Individual Tax Return.

Trap #1: Cover must be held by a registered health care insurer. Check if yours is on the list

Trap #2: Must have appropriate level of private patient health cover to affect your tax affairs. General cover (formerly called ancillary cover) or ‘extras’ is not private patient hospital cover because it covers only items such as optical, dental, physiotherapy or chiropractic treatment.

Signed up to private health insurance? So what ARE the benefits again?:

You are covered/insured for specified hospital services + other medical cost rebates provided for by your insurance provider under your particular cover + Save the additional 1% of Tax upon lodging your Individual Tax Return