Tax pain hits as ATO figures show Medicare Levy Surcharge jump

The Medicare Levy Surcharge now affects average wage earners, leaving many people with a tax bill they could easily avoid.

Private hospital cover can come with financial benefits.

Another 110,000 Australians have been stung by the Medicare Levy Surcharge, fresh figures show, amid new warnings people are wasting money through wrong health insurance choices.

The latest statistics from The Australian Taxation Office show that 616,903 people paid the Medicare Levy Surcharge in 2021-22, up 21 per cent from the 508,535 who paid it in 2020-21.

The number of Australians paying the surcharge has jumped 50 per cent in just two years, and financial specialists warn that rising wages could be pushing people unknowingly into surcharge territory.

The Medicare Levy Surcharge is designed to prompt higher income earners to take out private hospital cover, and it means people who earn more than $97,000 annually pay at least 1 per cent extra income tax.

More people are paying higher taxes because they don’t have health insurance.

Someone earning above $151,000 pays 1.5 per cent tax, equating to an extra ATO bill of at least $2265 each year, while a family with two people on the average $98,000 full-time income would pay $1960 combined.

That’s more than the cost of some private hospital insurance policies. Extras cover is separate to hospital cover and does not impact the surcharge.

The average Medicare Levy Surcharge paid in 2021-22 was $1337, according to the ATO.

Medibank says now is a good time for Australians to assess hospital cover and see if the surcharge affects them, because millions are doing their tax returns.

“With cost-of-living pressures biting, it’s worthwhile for people to check their finances and see whether taking out private hospital cover makes sense for their own financial situation,” Medibank chief customer officer Milosh Milisavljevic said.

“In many cases, a basic or bronze level cover could be around the same amount, or even less, than what most people are paying through the MLS,” he said.

Fellow health insurer Bupa recently crunched the numbers and found a couple with simple hospital cover could be better off financially by avoiding the surcharge, plus they would benefit from private rooms and skipping public hospital waiting lists.

Bupa Health managing director Chris Carroll said public hospitals remained under pressure, and the surcharge impact was worth investigating.

“In some cases, having the most basic hospital cover could cost less than paying the MLS if you don’t have private health insurance – and we know most families would welcome savings during the current cost-of-living challenges Australians are facing.,” he said.

“For example, a family can save about $441 dollars with accident-only hospital cover, instead of paying more than $3000 in tax and receiving no benefits

MBA Financial Strategists director Darren James said higher inflation had pushed wages up “and as a result of that a lot of people don’t realise that potentially they can get hospital cover that might cost the same as what the surcharge is costing them”.

“They could at least get something for their money, rather than pay the surcharge.”

Some people were cutting back on monthly household expenses, including health insurance, Mr James said, but apathy around tax rules can be costly.

“Some people look at their tax bill and just pay it – they don’t consider the impact of private health insurance.”

Originally published as Tax pain hits as ATO figures show Medicare Levy Surcharge jump