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Health Insurance Premiums and Tax Benefits

health insurance tax benefits

At this time of year, it can sometimes feel as if everyone is trying to sell you health insurance. Every second ad on TV attempts to reel you in, with claims on how much money you’ll be in for come tax time if you still don’t have private health insurance.

Many Australians buy into the hype and purchase health insurance in a rush, unaware of what their rights and tax liabilities might really be. At Online Tax Australia, we want you to understand exactly what you’re entitled to when it comes to health insurance, so let’s break it down.

Medicare and Medicare Surcharge – What is the difference?

All Australian resident taxpayers are liable to a 2% Medicare Levy, based on their taxable income during the year, once that income exceeds a pre-determined threshold. There are some specific situations where individuals may be entitled to an exemption from the Medicare Levy, such as defence force personnel, non residents, and so on.

The Medicare Levy Surcharge is a separate charge that applies to Australian taxpayers who do not have private hospital cover and who earn above a certain income threshold. This threshold is $90,000 for individuals and $180,000 for families. The Medicare surcharge rate varies from 1% to 1.5% as income levels increase above the threshold.

First rule. Taking out Private Health Insurance does not reduce or remove the Medicare Levy.

Second rule. Taking out Private Health Insurance does exempt individuals from paying the Medicare surcharge BUT that exemption only applies from the date the private hospital cover is taken. Don’t be fooled into believing that taking out private health cover in June will save you from the Medicare Surcharge for the portion of the year you did not have the cover.

If you take out cover on the last day of the year, you will you will still be charged the Medicare surcharge for the period in which you did not have hospital cover if your income for the year exceeded the threshold.

In conclusion, the current advertising does send a misleading message regarding tax savings which is designed to pressure individuals into taking out policies pre June 30.

For more information go to our Medicare Levy Surcharge page.

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