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Understanding the Medicare Levy Surcharge: a Guide for Taxpayers
As of July 1, 2023, the thresholds for the Medicare Levy Surcharge (MLS) in Australia will increase for the third consecutive year. This shift presents a strategic opportunity for taxpayers who earn above these new thresholds and do not possess private health insurance.
What is the Medicare Levy Surcharge?
The Medicare Levy Surcharge, enforced by the Australian Taxation Office (ATO), applies to individuals with higher incomes who lack private hospital cover. This surcharge adds an additional cost on top of the standard 2% Medicare Levy.
From July 1, 2023, the income thresholds are set to rise: the single threshold will change from $97,000 to $101,000, while the family threshold will increase from $194,000 to $202,000. Tax Invest Accounting’s founder, Belinda Raso, highlighted that this change is favourable for taxpayers, allowing singles an extra $4,000 in yearly income before the surcharge takes effect, and families an additional $8,000.
Important Considerations
Raso emphasizes the significance of reviewing health insurance options, as these decisions could save taxpayers thousands. With rising health insurance costs, she encourages taxpayers to evaluate their needs promptly so they can make informed choices, understanding that premium prices vary according to age, policy type, and coverage level.
Finder research indicates that the average single in Australia pays around $165 monthly for health insurance, totalling approximately $1,980 annually. Basic policies, which offer minimal coverage, average $78.36 per month (or roughly $940.32 per year).
While some individuals may opt to forgo private health insurance, Raso cautions that this choice mandates payment of the MLS. "By not taking out insurance, you essentially pay a tax for no tangible benefit," she notes.
Tax Rates and Surcharge Implications
The Medicare Levy Surcharge can range from 1% to 1.5%, based on income levels. For couples or families exceeding the income threshold, they must ensure that hospital cover is held for themselves, their partners, and any dependents to avoid this surcharge.
Raso points out that the family threshold encompasses various household configurations, including couples with children and single-parent families.
Timing Matters
Taxpayers reaching the income threshold for this financial year need to act quickly; it’s too late to secure a health insurance policy that would retroactively exempt them from the surcharge. Raso explains, "You’ll face liability for any uninsured days."
Understanding income calculations is critical; the definition of income extends beyond simple taxable income. It incorporates aspects like reportable fringe benefits, which are often grossed up, and other income adjustments such as investment losses or salary sacrifice.
To navigate this effectively, Raso advises taxpayers to comprehensively consider their total income and the relative cost of obtaining health insurance against the potential surcharge for the following year.
Conclusion
The impending changes to the Medicare Levy Surcharge thresholds offer a window of opportunity for many Australian taxpayers. By carefully assessing personal health insurance needs, individuals can avoid unnecessary taxation and make financially sound decisions for the upcoming financial year.
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