Australians could face unexpected tax penalties if they don’t act quickly to secure private health insurance. The Australian Taxation Office (ATO) has highlighted that individuals earning above certain thresholds are subject to the Medicare Levy Surcharge (MLS), which can significantly impact their finances.
What Is the Medicare Levy Surcharge?
The Medicare Levy Surcharge applies to singles earning over $97,000 annually and families earning over $194,000, provided they don’t have private hospital coverage. The surcharge ranges from 1% to 1.5% of income, potentially adding thousands to annual tax bills. This penalty is distinct from the Medicare levy, a 2% tax that applies to most Australian taxpayers.
For instance, a single person earning $100,016, the average full-time income, would owe a surcharge of $1,000.16. A family with two individuals earning this amount would face a combined surcharge of $2,000.32.
Income Thresholds for 2024–25
The tax penalties increase with income. Here’s a breakdown of the income thresholds:
- Tier 1: Singles earning $97,001–$113,000 (1% surcharge), families earning $194,001–$226,000.
- Tier 2: Singles earning $113,001–$151,000 (1.25% surcharge), families earning $226,001–$302,000.
- Tier 3: Singles earning over $151,001 (1.5% surcharge), families earning over $302,001.
These thresholds include not only taxable income but also reportable fringe benefits, super contributions, and losses from investments such as negative gearing.
Expert Advice: Take Action Early
Tax expert Mark Chapman of H&R Block advises Australians to act now to avoid both the Medicare Levy Surcharge and the upcoming health insurance premium hike set for April 1. He recommends securing an appropriate hospital policy early in the tax year, potentially reducing the surcharge liability for the remaining months.
“If your income qualifies for the surcharge, taking out private health insurance early is a smart move to save on penalties and offset rising premiums,” Chapman said.
A Tax-Smart Health Move
While avoiding the MLS is a key motivator, private health insurance can also offer practical benefits, such as quicker access to elective surgeries and reduced waiting times for treatments. Balancing the cost of premiums against potential penalties is essential to make an informed decision.
By acting early, Australians can mitigate financial risks, keep their tax bills in check, and potentially benefit from their health insurance investment in the long run.
