The Medicare Levy Explained: Who Pays It and How Much

What Is the Medicare Levy?

The Medicare Levy is a 2% charge on your taxable income that helps fund Australia's public healthcare system, Medicare. It's collected by the ATO as part of your annual income tax assessment and withheld through PAYG alongside your regular income tax throughout the year.

For most working Australians, the Medicare Levy is simply a line item on their tax assessment — 2% of whatever their taxable income turns out to be. But the rules around exemptions, phase-ins, and the separate Medicare Levy Surcharge are worth understanding properly.

Calculate your Medicare Levy →

Who Pays the Medicare Levy?

Most Australian residents who lodge a tax return and have taxable income above the low-income threshold are required to pay the Medicare Levy. For 2024–25, the thresholds are:

• Individuals: No levy below ~$26,000. A reduced levy applies between ~$26,000 and ~$32,500. Full 2% applies above ~$32,500.
• Families: The family threshold for 2024–25 is approximately $43,846, increased by $4,027 for each dependent child.
• Seniors and pensioners: Higher thresholds apply — approximately $41,089 for individuals eligible for the senior Australians tax offset.

Phase-In Zone

Rather than jumping from $0 to 2% at the threshold, the levy phases in gradually. In the phase-in zone, you pay 10% of the amount by which your income exceeds the lower threshold. This avoids a sudden jump in tax for people just above the threshold.

Who Is Exempt From the Medicare Levy?

Several categories of people may be exempt from the Medicare Levy entirely or for part of the year:

• People covered by a Ministerial Order (such as certain Norfolk Island residents, historically)
• Individuals who are not entitled to Medicare benefits (some temporary visa holders)
• Blind pensioners
• Sickness allowance recipients in some circumstances

If you believe you qualify for an exemption, you need to claim it in your tax return. For most temporary residents, the exemption applies only during periods when you were ineligible for Medicare.

The Medicare Levy Surcharge: An Additional Charge for High Earners

Separate from the standard 2% Medicare Levy is the Medicare Levy Surcharge (MLS). This applies to singles earning above $93,000 (for 2023–24; rising to $97,000 for 2024–25) who do not have an appropriate level of private hospital insurance.

The MLS rates are:

• $97,000 – $113,000: 1% surcharge
• $113,001 – $151,000: 1.25% surcharge
• $151,001 and above: 1.5% surcharge

So a single person earning $110,000 without private hospital cover would pay the standard 2% Medicare Levy plus an additional 1% MLS — a total of 3% of their income going to Medicare-related levies. At $110,000, that's $3,300 per year in levies.

Can Private Health Insurance Avoid the MLS?

Yes — holding an eligible hospital cover policy with an excess no greater than $750 (single) or $1,500 (family) exempts you from the MLS. Whether taking out private health insurance to avoid the MLS is worthwhile depends on your premium versus the surcharge amount. For many earners above the threshold, appropriate private cover costs less than the surcharge. See how the MLS affects your total tax →

If you're comparing private health insurance policies, there are some useful private health insurance guides on Amazon that break down hospital vs extras cover, excess trade-offs, and how to read a policy document.

How the Medicare Levy Appears on Your Tax Return

When you lodge your tax return, the ATO calculates your Medicare Levy based on your taxable income. If your employer has correctly withheld based on your expected income, the levy should be fully covered and may even produce a small refund. If you had investment income, rental income, or a side business that pushed your income higher than your employer withheld for, you may owe additional levy.

The Medicare Levy is listed as a separate line item in your Notice of Assessment, distinct from income tax. Model your full take-home pay including the levy →

Quick Reference Summary

• Standard Medicare Levy: 2% of taxable income for most resident Australians
• Low-income threshold (individual, 2024–25): approximately $26,000
• MLS kicks in for singles earning above $97,000 without hospital cover
• MLS rates range from 1% to 1.5% depending on income
• Exemptions exist for certain visa holders and low-income earners

Worked Example: How the Medicare Levy Affects Your Take-Home Pay

Let's follow Sarah, a marketing manager in Melbourne, to see how the Medicare Levy works in practice for the 2024–25 financial year.

Sarah earns a salary of $85,000 per year. She's under 65, single, and an Australian resident for tax purposes. Her taxable income after deductions is $82,000.

Here's how her Medicare Levy is calculated:

• Taxable income: $82,000
• Medicare Levy rate: 2% (she's well above the phase-in threshold of ~$32,500)
• Medicare Levy payable: $82,000 × 2% = $1,640

Sarah doesn't have private hospital insurance, but her income is below the MLS threshold of $97,000 for singles, so she avoids the Medicare Levy Surcharge entirely. Her total Medicare-related cost is just the standard $1,640.

Now let's compare Sarah to James, a software engineer in Sydney earning $120,000 taxable income, also single and without private health insurance.

• Taxable income: $120,000
• Medicare Levy: $120,000 × 2% = $2,400
• Medicare Levy Surcharge: James falls into the second MLS tier ($113,001–$151,000), so he pays an additional 1.25%
• MLS amount: $120,000 × 1.25% = $1,500
• Total Medicare levies: $2,400 + $1,500 = $3,900

If James took out basic private hospital cover costing $1,200 per year, he would avoid the $1,500 surcharge, saving $300 annually while gaining private hospital access. This is why many people above the MLS threshold compare insurance premiums to their potential surcharge.

One more scenario: Emma is a part-time retail worker earning $28,000 taxable income. She falls into the phase-in zone.

• Taxable income: $28,000
• Lower threshold (2024–25): ~$26,000
• Amount above threshold: $28,000 - $26,000 = $2,000
• Levy in phase-in zone: 10% of $2,000 = $200

Emma pays just $200 in Medicare Levy, not the full 2% ($560), because of the phase-in arrangement designed to ease the burden on lower-income earners.

Common Medicare Levy Mistakes and How to Avoid Them

Even though the Medicare Levy is relatively straightforward, several common errors trip people up each tax season.

Confusing the Levy With the Surcharge

The most frequent mistake is treating the 2% Medicare Levy and the Medicare Levy Surcharge as the same thing. They're separate charges. The standard 2% levy applies to almost everyone. The MLS is an additional charge only for higher earners without private hospital cover. You can pay both, one, or (in rare low-income cases) neither.

Claiming Exemptions Without Proof

Some taxpayers claim a Medicare Levy exemption without holding the proper documentation. If you're on a temporary visa and not entitled to Medicare, you need to demonstrate your visa status and the periods of ineligibility. The ATO can request evidence, and incorrect exemption claims can result in amended assessments and interest charges.

Not Updating PAYG Withholding After Income Changes

If you receive a pay rise, start a side business, or earn investment income that pushes you above an MLS threshold partway through the year, your employer's PAYG withholding won't automatically account for the surcharge. Come tax time, you may face a surprise bill. It's worth updating your withholding via a new tax file number declaration or making voluntary quarterly payments to avoid a large end-of-year liability.

Overlooking Family Thresholds

Families often miscalculate their levy obligations because the family income threshold is higher and increases with each dependent child. For 2024–25, a couple with two dependent children has a threshold of approximately $51,900 before the full levy applies. If family income is just above this, the phase-in rules apply to the combined income, which can significantly reduce the levy compared to what individuals might expect.

Assuming All Private Health Policies Avoid the MLS

Not all private health insurance policies exempt you from the MLS. Only hospital cover counts, and it must meet minimum coverage requirements. Extras-only policies (covering dental, physio, optical) do not help. Additionally, if your hospital policy has an excess above $750 for singles or $1,500 for families, it won't qualify. Always confirm your policy's MLS status with your insurer before assuming you're covered.

Medicare Levy for Families, Couples, and Dependants

The Medicare Levy rules adjust when you have a spouse or dependent children, and understanding these variations can save money or at least prevent surprises.

Family Income Test

For families, the ATO uses combined family income to determine levy liability. The 2024–25 family threshold starts at approximately $43,846, plus $4,027 for each dependent child after the first.

For example, a couple with three dependent children has a threshold of approximately $51,900. If their combined taxable income is $50,000, they pay no Medicare Levy. If their income is $55,000, they fall into the phase-in zone and pay a reduced levy.

This is particularly relevant for single-income families or those with one high earner and one low or zero earner. The family threshold can shelter more income than two separate individual thresholds would.

MLS for Families

The MLS income thresholds also increase for families. For 2024–25, the family MLS threshold is $194,000, plus $1,500 for each dependent child after the first. A couple with two children has a threshold of $195,500. If their combined income exceeds this and they lack appropriate family hospital cover, the MLS applies to their combined income.

One important detail: both adults must hold hospital cover to avoid the surcharge. If only one partner has cover, the family is not exempt unless both are covered under a family policy.

Single Parent Families

Single parents use the family threshold, not the individual threshold. A single parent with one child has a threshold of approximately $43,846 for the standard levy. This can be a significant advantage compared to the single person threshold of ~$26,000, reducing or eliminating levy liability for lower-income single parents.

Medicare Levy for Non-Residents, Expats, and Returning Australians

Residency status has a major impact on Medicare Levy obligations, and this is an area that causes confusion for people moving in or out of Australia or working overseas.

Foreign Residents

If you're classified as a foreign resident for tax purposes (non-resident), you generally do not pay the Medicare Levy, because you're not entitled to access Medicare. However, the definition of tax residency is complex. Simply working temporarily in Australia doesn't automatically make you a non-resident. The ATO applies the residency tests, which consider factors like your intention, family location, and ties to Australia.

Temporary visa holders who are tax residents but not eligible for Medicare can claim an exemption. You need to complete the Medicare Levy exemption section of your tax return and specify the period you were ineligible.

Returning Australians

Australians returning from overseas often regain Medicare access immediately or within a short waiting period. From the date you become entitled to Medicare benefits, you're liable for the Medicare Levy on your Australian taxable income. If you return partway through a financial year, the levy typically applies pro-rata from your date of re-entry or Medicare eligibility.

Dual Residents and Expats With Australian Income

Australian expats living overseas but still earning Australian-sourced income (such as rental income from an investment property) may remain Australian tax residents depending on their circumstances. If you're a tax resident, you're liable for the Medicare Levy on your worldwide income, even if you're living in London or Singapore and not accessing Medicare. This can feel unfair, but it's tied to tax residency status, not physical presence. Seeking a formal residency determination from the ATO is often worthwhile if you're living abroad long-term.

New Migrants and Permanent Residents

New permanent residents are generally entitled to Medicare immediately or shortly after arrival and become liable for the Medicare Levy as soon as they're tax residents. There's no exemption period for new migrants who hold permanent visas. If you arrive in Australia in January and become a tax resident from that date, you'll pay the levy on income earned from January onward for that financial year.