Medicare levy surcharge changes

Medicare Levy Surcharge Changes – What You Need to Know in 2025

As of 1st July 2024, changes have been introduced that impact the Medicare Levy Surcharge (MLS) and the Private Health Insurance Rebate in Australia. These adjustments are essential for anyone who may be affected by income thresholds or considering private health insurance, as the modifications can affect both your tax obligations and the financial benefit of having private health coverage.

The Medicare Levy Surcharge has traditionally served as a financial incentive to encourage high-income earners to maintain private health insurance and reduce the burden on Australia’s public health system. Previously, individuals earning above a certain threshold who did not hold private health insurance were subject to a 1% Medicare Levy Surcharge. This rate, however, has now increased, reaching up to 1.5% for higher income levels. This means that those with incomes exceeding $151,000 for singles or $302,000 for families are now subject to this increased surcharge if they do not have private health insurance coverage.

In addition to the increase in the surcharge rate, significant changes have also been made to the Private Health Insurance Rebate. Historically, the rebate provided a reduction on private health insurance premiums, ranging from 30% to 40%, depending on age. In 2025, the rebate is means-tested, meaning that individuals and families earning above specific income thresholds may lose their entitlement to any rebate altogether.

Let’s delve deeper into these changes, the income thresholds, and how these adjustments may impact your tax obligations and healthcare decisions.

What is the Medicare Levy Surcharge?

The Medicare Levy Surcharge is a tax applied to individuals and families in higher income brackets who do not have an appropriate level of private hospital cover. Its purpose is twofold: to lessen the demand for public health services and to encourage those who can afford private health insurance to take it up.

For many years, the Medicare Levy Surcharge rate was set at 1% of income for those who met the income threshold. However, as of July 2024, this surcharge has now increased on a tiered scale, with a maximum surcharge of 1.5%. This means that if you are a high-income earner without private hospital cover, you will face a higher Medicare Levy Surcharge.

The new income thresholds for the Medicare Levy Surcharge in 2024 are:

• Single individuals earning over $151,000 annually
• Families with a combined income over $302,000 annually

If you fall into these categories and do not have private hospital cover, you will incur a Medicare Levy Surcharge at a rate between 1.0% and 1.5%, depending on your exact income.

New Medicare Levy Surcharge Rates for 2024:

If you find yourself in Tier 3, the highest income bracket, and choose not to take out private hospital cover, you’ll incur the 1.5% surcharge, which could mean thousands of dollars in additional tax each year.

Example Scenario: How the Medicare Levy Surcharge Could Affect You in 2024

John and Sarah’s Situation:

• Income Details: John and Sarah are a couple with a combined family income of $320,000.
• Private Health Insurance: They have decided not to take out private hospital coverage this year.

Medicare Levy Surcharge Implications:

Since John and Sarah’s family income of $320,000 places them in Tier 3 (family income above $302,001), they will be subject to the highest Medicare Levy Surcharge rate of 1.5%. This surcharge is calculated on their total income for surcharge purposes.

Calculation of Medicare Levy Surcharge:

• Family Income: $320,000
• Medicare Levy Surcharge Rate: 1.5%
• Surcharge Amount: $320,000 x 1.5% = $4,800

Without private hospital cover, John and Sarah will pay an additional $4,800 in tax due to the Medicare Levy Surcharge. This additional tax could have been avoided if they had taken out an appropriate level of private health insurance.

This example demonstrates how high-income earners without private hospital cover may face substantial costs under the updated Medicare Levy Surcharge rates. Taking out private health insurance could potentially save thousands in extra tax, especially for those in Tier 3.

The Private Health Insurance Rebate – 2024 Changes

The Private Health Insurance Rebate was originally introduced to make private health insurance more affordable and attractive. This rebate could either be claimed as a reduction to your private health insurance premiums or as a rebate on your tax return.

In previous years, Australians could receive a rebate of up to 30% to 40% on their private health insurance premiums, depending on their age. However, the rebate structure in 2024 is a more stringent, income-based system.

If your income exceeds the designated thresholds ($151,000 for singles, $302,000 for families), you will no longer receive any rebate, regardless of your age or level of cover.

Here’s a breakdown of the new rebate rates by income and age:

Under the new structure, if you fall into Tier 3 (earning over $151,000 as a single or $302,000 as a family), you will not be eligible for any rebate on your private health insurance premiums. This could increase your overall costs if you were relying on this rebate to help reduce your insurance expenses.

Determining Your Income for Surcharge and Rebate Purposes

The Medicare Levy Surcharge and Private Health Insurance Rebate are both means-tested, meaning your entitlement is based on your income for surcharge purposes. Understanding what constitutes this income is crucial to determine whether you will be affected by these changes.

Your income for surcharge purposes includes:

1. Taxable income (including any net amount on which family trust distribution tax has been paid)
2. Exempt foreign employment income (if your taxable income is $1 or more)
3. Reportable fringe benefits amount, as shown on your payment summary
4. Total net investment losses (including both net financial investment losses and net rental property losses)
5. Reportable super contributions (including both reportable employer super contributions and deductible personal super contributions)

By combining these elements, you arrive at your income for surcharge purposes. If this total exceeds the threshold limits, you may either lose your Private Health Insurance Rebate or incur the Medicare Levy Surcharge.

Financial Implications and Planning Strategies

The recent changes make it more critical than ever for high-income individuals and families to carefully consider their healthcare options. Without private health insurance, high-income earners face increased tax obligations due to the elevated Medicare Levy Surcharge, while the removal of the rebate at higher incomes means private health insurance premiums could become significantly more expensive for some.

Here are a few strategies to consider in light of these changes:

1. Review Your Health Insurance Needs
   If you are in a higher income bracket, consider private health insurance as a cost-effective option to avoid the surcharge. Evaluate policies that align with your medical needs and budget.
2. Consider Timing of Additional Income
   Since the Medicare Levy Surcharge and rebate eligibility are assessed on a financial year basis, timing the receipt of bonuses, dividends, or capital gains could help you stay within a desired income threshold, potentially reducing your surcharge liability.
3. Monitor Your Investment and Super Contributions
   Since total net investment losses and reportable super contributions impact your income for surcharge purposes, managing these carefully could assist in keeping your income within lower surcharge tiers.
4. Consult a Tax Professional
   Navigating the complexities of income thresholds and deductions can be challenging. Consulting a tax professional can provide personalised advice to help you maximise your tax outcomes and avoid unintended liabilities.

Conclusion

The 2024 adjustments to the Medicare Levy Surcharge and Private Health Insurance Rebate mean that high-income earners must make informed decisions regarding their healthcare coverage and tax planning. With the surcharge now reaching up to 1.5% for top earners without private health insurance and the potential loss of the private health insurance rebate, understanding how these thresholds apply to you is essential.