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?
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 2% for people earning over the $27,997 threshold.
For lower-income earners, the ATO will determine the reduced Medicare levy rate you’ll pay.
As an example, here’s what your Medicare levy fee could be with some example salaries.
|Taxable income||Medicare levy charge|
Who has to pay the Medicare levy?
Australian residents with a taxable income over $30,345 are required to pay the full 2% Medicare levy tax fee each financial year.1 If you’re entitled to the seniors and pensioners tax offset (SAPTO), the income threshold changes to $47,956.
Those earning between $24,276 and $30,345 pay a reduced rate less than 2%. For anyone eligible for the SAPTO, this threshold increases to between $38,365 and $47,956. The Medicare levy for lower-income people is also calculated when you file your tax return.
You may also qualify for a reduced rate based on your family income if, in the income year, you:
- Were in a marriage or de facto relationship
- Had a spouse that died during the year
- Eligible for an invalid tax offset and an invalid carer tax offset for your child
- Were a single parent with sole care of one or more dependent children.
You may qualify for a reduction if you fit these criteria and your combined family income is between $40,939 and $51,174 ($53,406 – $66,758 with SAPTO), plus $4,700 for each dependent child.
If you’re a non-citizen residing in Australia, you may not be eligible for Medicare, so you won’t have to pay the levy. However, if you’re from a country with a Reciprocal Health Care Agreement (RCHA), like New Zealand or the UK, you may be eligible for Medicare and need to pay the levy.
Generally, you’ll only be taxed on your Australian-sourced income when you pay income tax as a temporary Australian resident. This means that if you’re visiting Australia as a temporary resident from an RHCA country but don’t make over the income threshold in Australia, you may not have to pay the Medicare levy.
This is only general advice and doesn’t consider your individual circumstances. For more information, refer to the Australian Taxation Office (ATO) website.
Who’s exempt from paying the Medicare levy?
Some people are exempt from paying the Medicare levy if they meet the requirements set 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 $24,276 in a financial year (or $38,365 for those who qualify for the SAPTO) won’t have to pay the Medicare levy.
- Foreign residents. You’re able to claim a full Medicare levy exemption for any part of the 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
- You 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.
People who aren’t entitled to Medicare are also exempt from paying the Medicare levy, since they aren’t allowed to use the public health system or rely on Medicare benefits. You may fall into this category if:
- You’re not an Australian citizen
- You don’t usually reside in Australia
- 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.
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 throughout the financial year does exempt you from paying the Medicare Levy Surcharge.