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Although private hospital insurance is not compulsory in Australia, if you do not have it and have a higher income, you may face tax penalties due to medical insurance surcharges. So, what exactly is Medicare Levey Surcharge and how does it work? How can investing in basic private hospital insurance help you avoid tax time?
What is the medical insurance surcharge?
The Australian government introduced the Medical Insurance Levy Surcharge (MLS) in 1997 to reduce the need for the public medical insurance system. For high-income Australians who do not have private hospital insurance but whose income exceeds a certain taxable income, this is a tax penalty.
What is the difference between Medicare Levy surcharge and Medicare Levey?
These two taxes are easy to confuse because their names are very similar. However, unlike MLS, which only targets high-income earners, Medicare Levey is mandatory for all Australian taxpayers, regardless of total taxable income (with some exemptions).
Medicare Levy funds our world-class public health system and requires all Australian taxpayers to pay 2% of their total taxable income. This will be applied automatically when your tax return is processed at the end of each fiscal year.
What is the Medicare Levy surcharge? How will it affect my tax return?
The total amount of MLS you need to pay depends on your income, which depends not only on the expenses your employer pays you, but also on any fringe benefits, the net amount of family trust distribution taxes paid, etc.
MLS is calculated based on two income thresholds (single and family) and increases in the four income levels. It will take effect when a person’s income exceeds US$90,000 or the comprehensive taxable income of a family exceeds US$180,000. For families with two or more dependent children, the family income threshold increases by $1,500 per person after the birth of the first child.
If you are at Tier 1, Tier 2, or Tier 3 and do not have enough private hospital insurance for the entire tax year, you may end up having to pay more when tax time comes.
However, before you rush to purchase eligible basic medical insurance for yourself before the end of the fiscal year to avoid paying MLS, please note: If you only hold hospital insurance for a part of the tax year, you will only be partially exempt from MLS . This means that you must pay a surcharge for all days without private hospital insurance.
The same is true for the temporary suspension of existing private medical insurance. For example, if you suspend payment to your medical insurance company for travel abroad, you must pay the MLS on the days when the policy is suspended.
Looking for cheap hospital insurance
How can private hospital insurance reduce medical insurance surcharges?
MLS is committed to incentivizing high-income Australians to invest in public hospital insurance. In order to avoid paying MLS, people are encouraged to buy private hospital insurance, which can provide substantial tax benefits for singles and couples.
However, not all basic private health insurance policies are equal-or indeed eligible. Make sure to shop around and save to ensure that the policy you choose is appropriate and will put you in a better financial position than paying MLS at the end of the fiscal year.
Which hospital insurance is the most cost-effective in reducing the impact of medical insurance surcharges?
You must purchase approved hospital insurance to be exempt from the surcharge.The approved hospital insurance requires the policy to have Registered as an Australian health insurance company, Including hospitalization fees and charges, the maximum is US$750 for single persons and US$1,500 for families.
It must also be for ‘Hospital insurance‘-Not “extra insurance”, “general treatment insurance”, “overseas visitors insurance” or “overseas student health insurance”.
If you are looking for an insurance policy primarily to avoid paying for MLS, it is easy to get cheap basic hospital insurance. However, it is important to note that these policies provide very few health care benefits for you or your family. Although insurance policies will vary, basic hospital insurance usually only requires limited basic coverage for the three clinical categories—rehabilitation, hospital psychiatric services, and palliative care—all other categories depend on the insurance company and policy.
Looking for cheap hospital insurance
The cost of your private health insurance policy will depend on your taxable income and you may be eligible to pass Private health insurance rebate And the type of policy you selected.
There are four levels of private insurance − Basic models, bronze, silver and gold. If you need to provide a more comprehensive private medical insurance for yourself or your family-providing more choices, less waiting time and more service and accommodation options, you can consider upgrading-or even increasing Extra cover – In the long run, this can also save you money.
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