Medicare Levy Surcharge: The Hidden Trap of Uninsured Kids

The ATO are coming for blood!

We’ve uncovered a nasty surprise that could be catching many unsuspecting taxpayers off guard—especially parents. A recent case involved a couple, both with private health insurance, who were slammed with the Medicare Levy Surcharge (MLS) because their young children (aged 1 and 3) were not covered on either policy. Despite paying over $5,000 in premiums between them, the ATO issued a $3,000 surcharge for just one year—and it could get worse if prior years are reviewed.

The kicker?

No one ever asked if their children were actually on the policy.

It seems obvious in hindsight, but it’s not a routine question we ask during tax prep: “Are your dependent children covered by your private health insurance?” With increasing ATO scrutiny, that question just became critical.

The trap lies in how you answer this tax return question:

“Were you and all your dependents covered by an appropriate level of private patient hospital cover for the full financial year?”

If you tick yes and list dependents in the return, but they’re not insured—you’re at risk. The ATO is now cross-checking declarations with policy records, and penalties (plus interest) apply.

Lesson for advisors and taxpayers alike: Check the fine print. Kids count. Don’t assume. And make sure your health policy truly covers the whole family.

If you need further information, please contact your Client Manager.