From 1 July 2012, the private health insurance rebate and the Medicare levy surcharge will be income tested against three new income tier thresholds.

Higher income earners will receive less private health insurance rebate or, if they do not have the appropriate level of private patient hospital cover, the Medicare levy surcharge may increase.

The ATO will determine the amount of a taxpayer's private health insurance rebate entitlement when they lodge their income tax return.

The new income tier thresholds

The private health insurance rebate and Medicare levy surcharge will be income tested against the income tier thresholds set out below:

Tier 1: The rebate will be reduced to 20% for singles whose income for surcharge purposes is between $84,001 and $97,000 (inclusive) and for couples/families whose income for surcharge purposes is between $168,001 and $194,000 (inclusive) that hold a complying policy.  The Medicare levy surcharge will remain at 1% for persons who fall within Tier 1 and do not hold appropriate private health insurance.

Tier 2: The rebate will be reduced to 10% for singles whose income for surcharge purposes is between $97,001 and $130,000 (inclusive) and for couples/families with income for surcharge purposes between $194,001 and $260,000 inclusive that hold a complying policy.  Also, the Medicare levy surcharge will be increased to 1.25%.

Tier 3: Singles with income for surcharge purposes of $130,001 or more and couples/families with income for surcharge purposes of $260,001 or more that hold a complying policy will no longer receive the rebate after 1 July 2012.  Also, the Medicare levy surcharge for them will increase to 1.5% from     1 July 2012.

For families with more than one dependent child, the relevant threshold increases by $1,500 per child.