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The Medicare levy is something you may have come across if you’ve ever filed your own tax return in Australia. But what is this levy, how much is it and are there ways to avoid it?

What is the Medicare levy?

The Medicare levy is a tax most Australian workers pay to help fund Medicare. The levy is usually two per cent of your taxable income. However, low-income earners may pay a reduced rate, or you may be exempt completely due to your personal circumstances.

You’re required to pay the Medicare levy tax in addition to any tax you pay on your taxable income and the amount is calculated when you file your tax return each year. Employers typically withhold a certain amount of your wage to cover the Medicare levy through the pay as you go (PAYG) system.

What’s the purpose of the Medicare levy?
The purpose of the Medicare levy is to provide funding for Medicare – which is accessed by both public and private patients. Medicare allows Australians to access free or more affordable hospital care, treatments listed on the Medicare Benefits Schedule (MBS) and medication listed on the Pharmaceutical Benefits Scheme (PBS).

Who has to pay the Medicare levy?

Everyone with a taxable income over $27,997 (or over $44,272 if you’re entitled to the seniors and pensioners tax offset) is required to pay the full two per cent Medicare levy tax fee each financial year.1

People earning between $22,398 and $27,997 pay a reduced rate less than two per cent.

For anyone eligible for the seniors and pensioners tax offset, this threshold increases to $35,418 and $44,272. The Medicare levy for those on lower incomes is also calculated when you file your tax return.

Couple filing tax return and looking over the Medicare Levy

How much is the Medicare levy?

The Medicare levy is a percentage of your taxable income. As such, there’s no universal amount that every Australian pays. The more income you generate, the higher your Medicare levy fee will be – but the rate stays at two per cent for all people earning over the $27,997 threshold.

For lower-income earners, the Australian Taxation Office (ATO) will determine the reduced Medicare levy rate you’ll pay.

As an example, here’s what your Medicare levy fee could be in relation to some example salaries.

Taxable incomeMedicare levy charge
$30,000$600
$50,000$1,000
$85,000$1,700

Who’s exempt from paying the Medicare levy tax?

Some people are exempt from paying the Medicare levy if they meet requirements set up by the ATO. If you’re eligible, you can claim an exemption when you file a tax return at the end of the financial year. People who may be exempt from the levy include:

  • low-income earners. Anyone earning less than $22,398 in a financial year (or $35,418 for those who qualify for the seniors and pensioners tax offset) won’t have to pay the Medicare levy;
  • foreign residents. You’re able to claim a full Medicare levy exemption for any period of a financial year where you’re considered a foreign resident for tax purposes;
  • those with specific medical requirements. You may be entitled to a full or half exemption from the Medicare levy if:
    • you’re a blind pensioner;
    • you claim Centrelink sickness allowance;
    • you hold a Veterans’ Affairs Repatriation Health Card; or
    • you can receive free medical treatment through Defence Force arrangements.

Whether you receive the full or half exemption will also depend on your children, their health status and whether they were exempt from paying the Medicare levy; and

  • people who aren’t entitled to Medicare Some people living in Australia aren’t allowed to use the public health system or rely on Medicare benefits, so they’re exempt from paying the Medicare levy tax. You may fall into this category if:
    • you’re not an Australian citizen;
    • you don’t usually reside in Australia; or
    • you’re working in Australia as a diplomate or a consular officer.

In these cases, you’ll require a Medicare Entitlement Statement (MES) to prove you’re not entitled to Medicare, which can be obtained through the Department of Human Services.

Frequently Asked Questions

Will taking out private health insurance exempt me from paying the Medicare levy?

No, taking out private health insurance or hospital cover doesn’t exempt anyone from paying the Medicare levy. If you earn over the threshold, you must pay the Medicare levy regardless of whether you hold private health insurance. You’re only exempt if you meet the criteria set up by the ATO.

However, having valid private health hospital cover does exempt you from paying the Medicare levy surcharge.

How is the Medicare levy different from the Medicare levy surcharge?

While the Medicare levy is a tax most income earners pay, the Medicare levy surcharge (MLS) is an additional tax of up to 1.5% that only people on high incomes (over $90,000) pay if they don’t take out relevant private health insurance. Both the Medicare levy and surcharge help fund Medicare.

Sources

1 Australian Government Australian Taxation Office (27 June 2019) – ‘Medicare levy reduction for low-income earners’ – Accessed 7/1/2020

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