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 โ 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 โ
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 2024โ25, 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 2024โ25 is approximately $43,846, increased by $4,027 for each dependent child.
- Seniors and pensioners: Higher thresholds apply โ 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 2023โ24; rising to $97,000 for 2024โ25) who do not have an appropriate level of private hospital insurance.
The MLS rates are:
- $97,000 โ $113,000: 1% surcharge
- $113,001 โ $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 โ 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 โ 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 โ
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 โ
Quick Reference Summary
- Standard Medicare Levy: 2% of taxable income for most resident Australians
- Low-income threshold (individual, 2024โ25): 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