ATO Warning: Medicare Levy Surcharge May Apply After a Pay Rise
The ATO has reminded taxpayers that a pay rise could come with unexpected tax consequences if they do not hold appropriate private hospital insurance.
The Medicare Levy Surcharge (MLS) applies to higher-income earners who do not maintain suitable hospital cover. It is designed to encourage private health participation and reduce pressure on the public system.
Who is affected?
For the 2024–25 financial year, the MLS applies to taxpayers whose income exceeds:
$97,000 for singles, or
$194,000 for couples and families,
with an additional $1,500 threshold increase for each dependent child after the first.
If a taxpayer does not hold appropriate private hospital insurance for every day of the financial year, the surcharge will apply.
How much is it?
The MLS is levied at 1% to 1.5% of a taxpayer’s income, depending on the income bracket. For example:
A single earning $100,000 without hospital cover could pay $1,000.
A taxpayer earning $150,000 could face a charge of $1,875.
These amounts can exceed the cost of basic hospital insurance.
What type of cover qualifies?
To avoid the MLS, taxpayers must:
Hold hospital cover or combined hospital and extras cover (extras-only is not sufficient),
Ensure the policy has an excess no greater than:
$750 for singles, or
$1,500 for couples or families, and
Include their partner and any dependants in the same policy, if applicable.
Is it too late to act?
No — although the surcharge applies on a daily basis throughout the year, taking out an eligible policy now can reduce exposure for the remaining part of the financial year.
Some insurers offer basic hospital policies that exist purely to help taxpayers avoid the MLS. These often cost less than the surcharge itself. For those wanting more than minimal coverage, bronze-tier policies offer broader clinical inclusions while still meeting the MLS exemption requirements.
Key Takeaway
Taxpayers who have recently received or expect a pay rise that pushes their income over the MLS threshold should urgently review their private health insurance arrangements. Without suitable hospital cover, they risk paying an avoidable surcharge at tax time.
If you are unsure about your current exposure or want advice on how best to minimise your tax, contact our office for tailored assistance.
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