Considerations for Taking Out Private Health Insurance to Avoid the Medicare Levy Surcharge
Tax Invest Accounting’s founder, Belinda Raso, has emphasised the importance for Australian taxpayers to contemplate purchasing private health insurance as the threshold for the Medicare Levy Surcharge (MLS) increases for the third consecutive year. This shift, effective from 1 July, means that individuals earning above $101,000, up from $97,000 last year, and families with combined incomes above $202,000, an increase from $194,000, may face additional taxes if uninsured.
Raso views this change positively, suggesting it benefits taxpayers by allowing them to earn an extra $4,000 for singles and $8,000 for families before the surcharge applies. She noted, "These thresholds have not increased annually, but we’re fortunate they have for the past three years,” encouraging those who have yet to secure health cover to act promptly.
The financial implications of avoiding the surcharge can be substantial. Raso points out that not having health insurance could lead to paying a tax that could be offset by the cost of insurance. She advises, “Make your decisions wisely; they could save or cost you thousands over the next financial year.”
Healthcare insurance costs vary based on several factors, including age and coverage level. According to Finder, the average monthly cost for a single adult stands at approximately $165, totalling around $1,980 annually. Basic policies provide the lowest level of cover for an average of $78.36 monthly, or $940.32 yearly.
Yet, it’s essential to assess if private health insurance is suitable for everyone. Raso argues that opting out of insurance subjects individuals to the MLS, effectively paying a tax without obtaining any health benefits. The surcharge rates range from 1% to 1.5%, added to the standard Medicare levy of 2%. Specifically, couples and families must ensure they hold hospital insurance to prevent incurring this surcharge if their combined income exceeds the thresholds.
Raso also clarifies the limitations regarding retroactive insurance enrolment to avoid the surcharge. If taxpayers have already reached the income threshold for the ongoing financial year, they cannot circumvent the surcharge by purchasing a health policy post-factum. “You’ll be responsible for the surcharge for the days without coverage,” she explained.
Understanding one’s total income is crucial, as it encompasses more than taxable income. Raso notes that reportable fringe benefits, investment losses, and salary sacrifices can influence income calculations, potentially affecting surcharge obligations. This complexity necessitates a comprehensive evaluation of both personal income and the potential costs of insurance to make an informed decision about coverage.
In conclusion, as the new tax year approaches, Raso urges Australians to carefully weigh the costs of private health insurance against potential surcharge liabilities. With rising thresholds and the possibility of incurring significant tax costs for being uninsured, taking proactive steps now could save money and provide peace of mind for the future.
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