Australians Advised to Review Health Insurance to Avoid Tax Penalties
Australians are being urged to review their health insurance policies to avoid incurring additional taxes imposed by the Australian Taxation Office (ATO). Each year, several hundred thousand taxpayers face the Medicare Levy Surcharge, with average additional costs reaching approximately $1,318.
Recent data from the ATO highlights a significant increase, with 768,537 individuals subject to the Medicare Levy Surcharge for the 2022-23 financial year—a nearly 25% rise from the previous year. The surcharge targets higher-income earners and incentivises them to obtain private hospital cover.
Starting July 1, thresholds for this surcharge will adjust, increasing to $101,000 for singles and $202,000 for families. The surcharge, which is an additional tax on top of the existing Medicare levy (set at 2%), varies from 1% to 1.5% depending on earnings.
Tax-time Considerations
Sophie Ryan, a spokesperson from iSelect, emphasised the need for Australians to consider their health insurance as part of their end-of-financial-year planning. Shockingly, more than half (55%) of surveyed policyholders were unaware of the reduced private health insurance rebate available.
Moreover, a concerning 20% of Australians do not know if they are liable for the Medicare Levy Surcharge, indicating a significant gap in public understanding about these tax implications. The private health insurance rebate is designed to assist those earning $158,000 or less as individuals, or $316,000 for families, with government contributions ranging between 8% to 32%, depending on income and age.
Timeliness is Crucial
For those who incurred the surcharge this financial year, acquiring a new health insurance policy now will not exempt them from the associated tax. Tax Invest Accounting’s director, Belinda Raso, noted that if taxpayers lack private health insurance, they will incur the surcharge for each day they remain uncovered.
Raso also pointed out that additional income sources, such as reportable fringe benefits, can elevate taxable income, thus increasing one’s chances of being subjected to the surcharge. To effectively avoid such penalties in the upcoming financial year, obtaining private health insurance before the July 1 deadline is essential.
Policy Comparisons for Better Savings
Current policyholders are encouraged to compare their existing health coverage, as many might be paying a "loyalty tax." Research by iSelect revealed that a staggering 76% of policyholders had not switched their health insurance in over two years, potentially missing out on savings. A significant 65% of Australians who switched reported savings of at least $100 per year.
Ryan advocates a review of health insurance policies to evaluate coverage, including extras and excesses, which could lead to substantial savings and peace of mind.
Conclusion
With looming tax penalties for those without adequate private health insurance, Australians are advised to thoroughly assess their coverage as part of their financial planning. Not only could this lead to avoiding the Medicare Levy Surcharge, but it may also uncover opportunities for better deals that align with individual health needs and financial circumstances.
