Can taking out health insurance help you save on tax?

We share all the answers to your concerns and frequently asked questions surrounding health insurance tax in Australia

17 July 2023 6 minute read

Two people looking completing their tax online

For some of us, tax time can be like Christmas for the bank account – there might be a surprise boost to the balance when the tax refund comes in.

But for others, it might leave you thinking it’s accrual world (sorry, it’s hard to resist a good financial pun).

Regardless of your feelings towards tax, it’s important to understand if having private health insurance can help reduce the amount of tax you might have to pay – because there’s nothing better than protecting yourself with health cover AND saving money at tax time.

As your health partner, nib can help break down the often-complicated jargon and make tax time… well… less taxing.

If you’re wondering whether health cover can help you save at tax time, the answer is maybe – it all depends on your personal circumstances.

First, let’s get familiar with two Government schemes:

The Australian Government Rebate

To make private hospital cover more affordable, the Federal Government offers a rebate, known as the Australian Government Rebate (AGR). If you earn $144,000 or less as a single (or $288,000 or less as a family), you’re eligible for Medicare and you take out an appropriate level of hospital cover from nib you’ll be eligible for the AGR. The amount of the rebate that you are eligible to receive depends on which age and income bracket you fall under. You can head to nib’s Australian Government Rebate information page to find out which age bracket you’re eligible for and what percentage of your premium the Australian Government will cover. You can receive your AGR as a reduction on your premiums.

Although the AGR is not a tax, if you claimed too much AGR as a premium reduction (or too little), it will be reconciled at tax time.

Medicare Levy Surcharge

If your taxable income is above $93,000 (or $186,000 for families) and you don’t have what’s deemed an appropriate level of health cover, you may have to pay a surcharge when it comes to tax time. This is dubbed the Medicare Levy Surcharge (MLS) and is an extra 1-1.5% on top of the standard Medicare Levy we all pay (regardless of our income)¹.

Once you get an understanding of your eligibility for the AGR and the MLS, you’ll be able to determine whether taking out private health insurance for financial reasons is a good idea for you. Regardless of the tax implications, it’s important to consider the implications of not having health cover if you were to get ill or injured.

Check out our article, Why do I need private health insurance?

Health insurance for tax purposes

When it comes to picking a health insurance for tax purposes, your best bet is to talk to your financial professional for personalised advice.

However, when it comes to finding health insurance that will protect you and your family, it’s important to look for a policy that is easy to use and covers you for everything you need – that way, it will help to avoid nasty bill shocks if you ever need to use it! If you’re not sure where to start, get in touch with of our health cover experts through our contact us page.

Is health insurance tax deductible?

In Australia, health insurance isn’t tax deductable. As mentioned above, the way you can reduce the cost of your health insurance is through the Australian Government’s private health insurance rebate and for some Aussies, if you don’t have private hospital cover, you may be required to pay the Medicare Levy Surcharge.

1. Medicare Levy Surcharge (MLS) is a government initiative and may apply if you are a single and earn over $93,000 per year, or a couple and earn over $186,000, and don't have private hospital cover. The surcharge is payable for every day you don't have hospital cover within the financial year. The Australian Tax Office uses a special definition of income (called income for MLS purposes) to determine whether you are liable to pay the MLS, and the rate of MLS you will have to pay. This income is different to your taxable income.