The Medicare Levy is a compulsory tax in Australia that helps fund the country's public healthcare system, known as Medicare. Medicare provides essential healthcare services and benefits to Australian residents, including access to medical treatments, doctor visits, hospital care, and certain medical tests.
The current full basic levy is 2.0%, subject to low income tests and some exemptions.
Medicare Levy calculations
Medicare levy is calculated when you lodge your income tax return. Generally, the pay as you go amount your employer withholds from your salary or wages includes an amount to cover the Medicare levy.
Medicare Levy calculation is relatively straightforward:
- Determine Taxable Income: Start by calculating your taxable income. This includes your salary, wages, business income, rental income, and any other assessable income, minus any allowable deductions.
- Apply Medicare Levy Rate: Once you have your taxable income, you need to apply the Medicare Levy rate to it. The Medicare Levy rate is usually a percentage of your taxable income. For example, currently the Medicare Levy rate is 2%, and if your taxable income is $50,000, the calculation would be: $50,000 * 0.02 = $1,000.
Medicare levy exemption
In Australia, certain individuals may be eligible for exemptions from paying the Medicare Levy, either partially or entirely. These exemptions are provided to individuals who meet specific criteria and are designed to ensure that those who are in financial need or facing certain circumstances are not burdened by the levy. Here are some common situations that could result in a Medicare Levy exemption:
- Low Income: Individuals with low taxable incomes might be exempt from paying the full Medicare Levy or may qualify for a reduced amount. The exact income thresholds for these exemptions can vary from year to year and depend on individual circumstances.
- Pensioners: Australian pensioners, veterans, and some other social security recipients may be eligible for a Medicare Levy exemption or reduction.
- Blindness: People who are legally blind are often entitled to a Medicare Levy exemption.
- Specific Medical Conditions: Individuals with certain medical conditions that are defined by law may qualify for a Medicare Levy exemption. This typically includes conditions that are considered chronic, severe, or terminal.
- Certain Visa Holders: Some temporary residents or specific visa holders might be exempt from the Medicare Levy under certain circumstances.
- Foreign Residents: Generally, foreign residents for tax purposes are not required to pay the Medicare Levy.
Medicare levy reduction
Some individuals may be eligible for a reduction in the Medicare Levy, which means they will pay a lower amount of the levy compared to the standard rate. This reduction is designed to provide financial relief to individuals who may not meet the criteria for a full exemption but are still facing certain circumstances that warrant a reduced Medicare Levy payment. Here are some common situations that could result in a Medicare Levy reduction:
- Low Income: Individuals with low taxable incomes may qualify for a reduction in the Medicare Levy. The reduction amount is usually calculated based on a sliding scale that takes into account the individual's income level.
- Family Circumstances: Families with dependent children or other dependents may be eligible for a reduction in the Medicare Levy. The reduction amount might vary depending on the number of dependents and the family's overall income.
In 2022–23, you do not have to pay the Medicare levy if your taxable income is equal to or less than the lower threshold. Your Medicare levy will be reduced if your taxable income is above the lower threshold and at or below the upper threshold.
If you were entitled to the Seniors and pensioners tax offset
All other taxpayers
ATO hasn't updated income thresholds for 2023-2024 year yet.
You may be eligible for a Medicare levy reduction based on your family taxable income if you meet both of the following:
- Your individual taxable income was more than $30,345 ($47,956 for seniors and pensioners entitled to the SAPTO) in 2022–23. And you either:
- had a spouse (married or de facto)
- had a spouse that died during the year, and you did not have another spouse before the end of the year
- are entitled to an invalid and invalid carer tax offset in respect of your child
- had sole care of one or more dependent children.
Family taxable income thresholds
Your Medicare levy may be reduced for 2022–23 if your family taxable income is more than:
- $40,939 and less than $51,174 (Not eligible for SAPTO)
- $53,406 and less than $66,758 (if you are entitled to the seniors and pensioners tax offset (SAPTO)).
Add $4,700 to the thresholds above for each dependent child.
Medicare levy surcharge
The Medicare Levy Surcharge (MLS) is an additional tax in Australia that applies to individuals and families who earn above a certain income threshold and do not have private hospital insurance. The surcharge is designed to encourage higher-income earners to take up private health insurance, which helps alleviate the demand on the public healthcare system, specifically public hospitals.
The surcharge rate is determined by an income test. Single incomes over $90,000 or family incomes over $180,000 have a surcharge rate of between 1% and 1.5% of income.
Medicare Levy Surcharge Income Thresholds for 2023-24
|$0 - $93,000||$0 - $186,000||0%|
|$93,001 - $108,000||$186,001 - $216,000||1%|
|$108,001 - $144,000||$216,001 - $288,000||1.25%|
|$144,001 and over||$288,001 and over||1.5%|
* Family income thresholds are increased by $1,500 for the second and subsequent dependent children.
To avoid Medicare Levy Surcharge, just buy private health insurance as the price for insurance might end up cheaper.