Understanding the Medicare levy

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A guide to the Medicare levy

Updated 26 March, 2024
Written by Joshua Malin
Reviewed by Steven Spicer

What is the Medicare levy?

The Medicare levy is a tax paid by most Australian taxpayers to help fund our public healthcare system, Medicare. The levy is usually 2% of your taxable income. However, if you’re a low-income earner, have a medical exemption or are a foreign resident, you may only have to pay a reduced rate or none at all.

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 annual income tax return. Employers typically withhold a certain amount of your wage to cover the Medicare levy through the pay as you go (PAYG) system.

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).

How is the Medicare levy different from the Medicare Levy Surcharge?

While the Medicare levy is paid by most Australian taxpayers, the Medicare Levy Surcharge (MLS) is an additional tax of up to 1.5% that only high-income earners (over $93,000 for singles and over $186,000 for couples and families) pay if they don’t hold an eligible private hospital cover throughout the financial year. This surcharge is designed to encourage higher-income earners to take out hospital insurance, reducing the strain on the public system. As such, you can’t avoid the MLS by taking out extras cover. You also aren’t exempt if you have overseas visitor health cover (OVHC) or cover from an international insurer.

Your income for Medicare Levy Surcharge purposes is calculated slightly differently to your standard taxable income. Your income for MLS purposes is the sum of:

  • Your taxable income including any amount on which family trust distribution tax has been paid, and not including any assessable First Home Super Saver released amount for the income year
  • Any reportable fringe benefits
  • Your total net investment losses
  • Reportable super contributions.

If you’re still not sure how much MLS you’ll need to pay, try using an MLS calculator or refer to the ATO website here.

More information on the Medicare levy

How much is the Medicare levy?

Who has to pay the Medicare levy?

Who’s exempt from paying the Medicare levy?

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

Meet our health insurance expert, Steven Spicer

Steven Spicer
Executive General Manager – Health, Life & Energy

As the Executive General Manager of Health, Life and Energy, Steven Spicer is a strong believer in the benefits of private cover and knows just how valuable the peace of mind that comes with cover can be. He is passionate about demystifying the health insurance industry and advocates for the benefits of comparison when it comes to saving money on your premiums.

1 Australian Government, Australian Taxation Office: Medicare levy. Updated July 2022.