Medicare Levy Surcharge warning as more Aussies hit with $1,318 ATO tax: ‘Don’t even know’

Australians are being urged to check their health insurance cover, or risk being hit with an extra tax by the Australian Taxation Office (ATO). Hundreds of thousands of people are stung with the Medicare Levy Surcharge each year, with the average person forking out an extra $1,318 in tax.

Fresh data from the ATO revealed that 768,537 people paid the Medicare Levy Surcharge in 2022-23, up nearly 25 per cent from 616,903 people who paid it in 2021-22. The Medicare Levy Surcharge is designed to encourage higher-income earners to take out private hospital cover.

From July 1, the singles threshold at which the tax applies will be $101,000, up from $97,000, while the family threshold will be $202,000, up from $194,000. The surcharge is paid on top of the Medicare levy of 2 per cent, and is between 1 and 1.5 per cent depending on your income.

RELATED

iSelect spokesperson Sophie Ryan said health insurance wasn’t typically top of mind around tax time, but urged Aussies to add it to their end-of-financial-year checklist.

“More than half of policyholders surveyed (55 per cent) weren’t aware of the reduction in the private health insurance rebate this year,” Ryan said.

“Meanwhile, one in five of all Aussies (20 per cent) don’t even know whether they’re paying the Medicare Levy Surcharge – an extra tax that higher-income earners may have to pay if they don’t have an appropriate level of hospital cover by July 1.”

The private health insurance rebate is a contribution the government makes towards your private health insurance premium.

It is income-tested and applies to singles earning $158,000 and under, and families earning $316,000 and under for the 2025-26 financial year.

The rebate ranges from 8 to 32 per cent, depending on your income and age.

Do you have a story to share? Contact [email protected]

If you have hit the Medicare Levy Surcharge this financial year, you can’t take out a health insurance policy now to avoid the charge completely.

Tax Invest Accounting director Belinda Raso explained that taxpayers are liable for the surcharge for each day they are not covered by private health insurance.

“It’s very hard to avoid it if your income’s over that amount,” she told Yahoo Finance.

“A lot of people don’t realise the reportable fringe benefits will get them in most cases because they get grossed up.”