“In this world nothing can be said to be certain, except death and taxes.” Benjamin Franklin said that in 1789. Nothing much has changed, has it?
Maybe you don’t, because it’s just another item on your payslip, taken care of by your employer.
If so, you’re reading the right article.
In a nutshell, it’s a tax based on how much you earn. Back in 1984 it was one per cent of taxable income for everyone, except those on a very low income. It now sits at two per cent of your taxable income.
Medicare, originally known as Medibank, was introduced by Gough Whitlam in 1974. It was then changed substantially by Malcom Fraser in 1976, and taken back to its roots in 1984 by Bob Hawke. There’s been little change by any government since then.
The Medicare levy partially funds Australia's national health insurance scheme. Technically, as a tax payer, you’re paying for the lot – but let’s not get distracted by that.
It’s interesting that over the years, the levy has been increased and used to pay for other items of government spending – such as John Howard’s gun buy-back scheme. But most of the cash it brings in is still used fund health related issues.
If you earn more than $27,068 per year if you’re single, or $45,676 plus $4,195 for each of your dependent children if you’re part of a family, you will pay an extra two per cent tax to cover Medicare.
So, if you earn $50,000 per year, you’ll pay $1,000 of your taxable income.
Who is exempt from the Medicare levy? There are a few exceptions to the rule. Are you one of them?
The answer is ‘yes’ if you:
Others who earn less than $26,668 per year (or $42,172 for seniors and pensioners) only pay part of the Medicare Levy.
Even if you’re not entitled to Medicare benefits, you could still pay the Medicare levy.
Yep, you heard that right.
To be exempt you must be a permanent resident of Australia and fall into one of these categories:
To prove you’re exempt from paying the levy and that you qualify on any of the above criteria, you’ll need a Medicare Entitlement Statement.
For more information, head to Medicare.
There are also some medical grounds exemptions – but as it’s quite a lot to absorb, it’s best if you go to the Australian Tax Office (ATO) site for all the detail.
The Medicare Levy and the Medicare Levy Surcharge are different beasts.
The Medicare Levy Surcharge kicks in with an additional 1% - 1.5% if you earn more than $90,000 (for singles) and $180,000 (for families) annually AND if you don’t have what the ATO deems to be an ‘appropriate’ level of private patient hospital insurance.
Right now, the ‘appropriate’ level of insurance is cover with an excess of $500 or less for singles, and an excess of $1,000 or less for couples or families.
The ATO determines your income based on:
The percentage of tax will increase if you exceed the thresholds and don’t have an ‘appropriate’ level of cover – and you could pay about $75.00 per month more on those salaries.
By the way, if you and your partner have private hospital insurance and you have children who aren’t covered by your policy, you could still be hit with the surcharge. So no matter how young they are, include them under your policy.
This is the government’s way of encouraging you to take out private hospital cover and to use the private health system.
The surcharge is calculated DAILY, if you don’t have appropriate cover.
As usual there are caveats – and again the ATO website explains the nuts and bolts. Make sure you purchase your insurance from a registered Australian health fund for a full year.
Oh, and travel insurance is not a substitute for private hospital insurance, so if you’re going overseas and think you’ll suspend your private health insurance, be careful – you could end up liable for the surcharge. Be sure to talk to your insurer before making that decision. Now to confuse you all over again…
If you have been assessed and you must pay the surcharge as well as the levy, your notice of assessment will show one amount on your notice of assessment called Medicare levy and surcharge.
OK that’s the bad news.
But there is a sweetener!
The government will reward you for taking out private health insurance of an appropriate level. Your policy should provide private patient hospital cover or general cover that covers 'extras' or combined hospital and extras.
The rebate is income tested, so if you’re on a higher salary the amount of rebate could be reduced – or you might not qualify at all.
The rebate can reduce the premium you pay to your insurer, or be a refundable tax offset when you lodge your tax return.
If you live and earn money in Australia, the Medicare levy is something you’ll have to contend with.
With all the ‘what, ifs and buts’ involved in getting to grips with the Medicare levy and the Medicare levy surcharge – especially if your income isn’t that simple – you’d be well advised to do your tax return through a tax agent or accountant and get some professional advice along the way.
If you go it alone, the ATO has specific advice relating to the Medicare levy and health insurance and completing your tax return. Good luck!
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