Ever wondered how Medicare is funded? Well, this important public health service is actually publicly funded by you. All Australians pay an income tax surcharge, known as the Medicare levy and, in some cases, the Medicare levy surcharge (MLS). Youβre probably familiar with the Medicare levy, but the question is, do you need to pay the MLS?
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Medicare levy surcharge
What is the Medicare levy surcharge?
The first thing to understand is that the Medicare levy and the MLS are two separate charges. However, the revenue from both is used to fund the vital health services that Medicare provides.
If you earn more than $27,068 per year (or $42,805 for seniors and pensioners), then youβll need to pay a Medicare levy equal to 2% of your annual taxable income.
If your income is lower than this β between $21,655 and $27,068 (or $34,244 and $42,085 for seniors and pensioners) β then youβll only pay part of the Medicare levy.
The MLS is an additional charge that you may need to pay on top of the Medicare levy. It is used to encourage Australian taxpayers to use the private hospital system and therefore reduce the stress on public hospitals.
Who has to pay the Medicare levy surcharge?
If you donβt have private hospital health insurance and make more than $90,000 per year for singles and more than $180,000 for families, then you are required to pay an MLS.
In saying that, if your family income exceeds $180,000, but you make $21,655 or less per year, then you may be exempt from paying the MLS.
To calculate your income for MLS purposes, combine your taxable income and any reportableΒ fringe benefits, then subtract any investment losses and any reportable super contributions youβve made.
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How is the tax applied?
If you are required to pay an MLS, it will be included with the Medicare levy and listed on your notice of assessment as βMedicare levy and surchargeβ. The amount changes depending on your income. If youβre:
- Single and you make between $90,001 and $105,000 per year, or a family with an income between $180,001 and $210,000 per year, you must pay an MLS equal to 1% of your taxable income.
- Single and you make between $105,001 and $140,000 per year, or a family with an income between $210,001 and $280,000 per year, your MLS will be 1.25% of your taxable income.
- Single with an annual income of $140,001 or more, or a family with an income over $280,000, your MLS goes up to 1.5% of your taxable income.
Tax considerations for business owners
If youβre a business owner with employees, you may need to withhold additional tax when completing your payroll. Just like when you work out how much income tax to withhold and how muchΒ super to pay, youβll also need to calculate how much to withhold to cover each employeeβs Medicare levy so they donβt get hit with an unexpected tax bill.
Use the ATOβs handyΒ tax withheld calculatorΒ to work out how much tax you need to withhold, or use accounting software with payroll functionality such as QuickBooks Online. If you make more than $90,000 per year, the best way to ensure youβre exempt from an MLS is to take out a current private hospital health insurance policy. Depending on your income, the health insurance premiums you pay may be less than the MLS payment youβll need to cover, so you might end up saving yourself money.
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