Every day Australians are being compelled to stump up thousands in unforeseen repayments to the Australian Taxation Office (ATO) after lodging their income tax return. And it’s all due to the improperly recognized Medicare Levy Surcharge (MLS).
The Medicare Levy Surcharge is paid as a portion of your total revenue (on a gliding range of 1 – 1.5 percent) for taxpayers making over a particular limit, which begins at $97,001. On a $100,000 wage, the additional charge totals up to an additional $1,000.
But why is this capturing a lot of individuals out? It’s greatly because of the complicated terms made use of by the Medicare- associated section of our tax obligation.
People require to be familiar with both the Medicare Levy and the Medicare Levy Surcharge.
The Medicare Levy is billed at 2 percent of your revenue, and is usually developed right into your PAYG tax obligation payments.
The additional charge, nonetheless, just starts when you make over the limit.
It’s billed at 1-1.5 percent of your revenue, depending upon just how much you make. You can prevent paying the additional charge by having an appropriate level of private hospital cover.
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‘It stated I owed thousands’
Sarah from Victoria obtained a shock when her income tax return notice revealed that she “owed thousands”.
Part of this was because of owing assistance financial debt, however she states she “had no idea about the Medicare Levy [Surcharge].”
“When I asked my tax obligation representative they stated it was since I mored than the limit and really did not have medical insurance. It was virtually $2,000,” she told Yahoo Finance.
Jacki, also from Victoria, found herself in a similar situation, describing herself as “rudely shocked” at not only not receiving a refund as she usually did, but having to pay $1,000.
“I was fortunate enough to go from earning $90,000 to $110,000 last year,” Jacki said.
“Never in my life had I not got a least a small tax [refund] and I was very much unprepared.”
Jacki said she looked into getting private health insurance to satisfy the ATO requirement and exempt herself from the surcharge, but described it as “overwhelming and complicated”.
She also discovered that the cheapest low level policies seemed “worthless”, while a more useful policy still costs more than the MLS she would owe on her $110,000 salary.
Experts warn Aussies to be prepared for income jumps
A common factor surrounding Medicare Levy Surcharge confusion is that many people dismiss the need to understand it, and get caught out later.
The $97,000 threshold is well above the median income in Australia of $1,300 per week (around $67,000), leaving many lower-income earners assuming they’ll never need to worry about it.
But with wage growth on the rise (up to 4.1 per cent from the long-held average of 2.4 per cent), more Aussies may find themselves in higher income earning bands than before.
Glen James, creator and host of the money money money podcast (formerly My Millennial Money) explained that many Aussies won’t realise they’re liable for the surcharge until they’re lumped with a “nasty surprise” come tax time.
The 2024-25 Medicare Levy Surcharge thresholds are $97,001 as a single, or $194,001 as a couple.
For families with children, the threshold increases by $1500 for every MLS-dependent child after the first child.
James recommends making a “judgment call” at the start of every financial year.
“Try to forecast what the next 12 months may look like, as the surcharge is pro-rated,” he said.
This means that even if you begin the financial year earning under the threshold, it’s your total financial year income that matters.
If by June 30, you’re reporting a financial year that places you above the threshold, you’ll be liable for the surcharge.
If you were to take out private health insurance mid-way through the year, you’ll still pay the surcharge at a pro-rated rate, for every day of the financial year you don’t have appropriate cover in place.
James’s recommendation of an annual forward look at your finances is critical if there’s even the slightest chance your income could tick over the threshold.
He reminds taxpayers to consider any and all sources of income, including side hustles and investment income.
“If your salary is $95,000 and you earn $3,000 of investment income, you have now earned $98,000 and will pay the MLS,” he explained.
This warning also pertains to those with considerable interest-earning savings.
If you have a below-threshold salary, but have $100,000 saved for a deposit in a savings account earning 4 per cent per year, you’ll be taxed on that extra $4,000 too, pushing you closer and closer to the threshold.
To avoid the Medicare Levy Surcharge, you must hold an appropriate level of hospital cover – extras cover is not linked to your MLS liability. For more information, visit the ATO site
