Understanding the Medicare Levy
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 standard Medicare 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 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 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 higher-income earners (over $105,000 for singles and over $210,000 or couples and families in the 2026-27 financial year) pay if they don’t hold an appropriate level of eligible private hospital cover throughout the financial year. Extras-only cover will not help you avoid paying MLS.
This surcharge is designed to encourage higher-income earners to go private for their hospital treatment, reducing the strain on the public hospital system. A Compare the Market survey found that around 12% of people surveyed said avoiding MLS was a worthwhile reason to get hospital cover, which makes sense considering it can add thousands of dollars to your tax.3 As the MLS is designed to reduce strain on public hospitals, you can’t avoid the MLS by taking out extras cover.
Your MLS amount is calculated using a special definition of income, called ‘income for Medicare Levy Surcharge purposes’, which could differ slightly 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.
The table below shows the MLS income thresholds for both singles and families and the percentage you may have to pay.5
| Medicare Levy Surcharge – Income Tiers (all ages) | ||||
|---|---|---|---|---|
| Surcharge rate | 0% | 1% | 1.25% | 1.5% |
| Single income thresholds |
$105,000 or less ($0 payable) |
$105,001 – $123,000 (~$1,050 – $1,230 payable) |
$123,001 – $164,000 (~$1,537 – $2,050 payable) |
$164,001+ ($2,460+ payable) |
| Family income thresholds^ |
$210,000 or less ($0 payable) |
$210,001 – $246,000 (~$2,100 – $2,460 payable) |
$246,001 – $328,000 ($3,075 – $4,100 payable) |
$328,001+ (~$4,920+ payable) |
|
Retrieved from Australian Taxation Office | Information current from 1 July 2026. Dollar amounts payable are rounded up. ^ For families with children, thresholds increase by $1,500 for each child after the first. Families include couples, de facto couples, and single parents. |
||||
Compare the Market’s research has revealed that 40.8% of Aussies don’t understand how the Medicare Levy Surcharge works.1 Around one in five Australians don’t even know what the MLS is.2 This could mean people are paying hundreds – or even thousands – extra at tax time without even realising it.
If you’re still not sure how much MLS you may 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 2% of your taxable income for anyone earning more than $35,013. 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 $35,013 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 taxable incomes.
| Taxable income | Medicare levy charge |
|---|---|
| $40,000 | $800 |
| $50,000 | $1,000 |
| $85,000 | $1,700 |
Who pays the Medicare levy?
Australian residents with an annual taxable income over $35,013 are required to pay the full 2% Medicare levy fee each financial year.4 If you’re entitled to the seniors and pensioners tax offset (SAPTO), the income threshold changes to $55,335.
Those earning between $28,011 and $35,013 pay a reduced rate less than 2%. For anyone eligible for the SAPTO, this threshold increases to $44,268-$55,335. 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’s combined income if, in the financial year, you:
- Were in a marriage or de facto relationship.
- Had a spouse who died during the year.
- Were 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 $47,238 to $59,047 ($61,623 – $77,028 with SAPTO), plus $4,700 for each dependent child.
International visitors
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), such as 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?
People who are low-income earners, foreign residents and those with specific medical requirements are exempt from paying the Medicare levy if they meet the requirements set by the ATO. If you’re eligible, you can submit a Medicare levy exemption form 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 $28,011 in a financial year (or $44,268 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:
- Are a blind pensioner.
- Hold a Veterans’ Affairs Repatriation Health Card.
- 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:
- Are not an Australian citizen
- Don’t usually reside in Australia
- Are working in Australia as a diplomat 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.
Do you pay the Medicare Levy if you have private health insurance?
Yes, you’ll still need to pay the levy with private health cover. Taking out private hospital insurance can exempt certain people from the surcharge, but not the Medicare levy. If you earn over the threshold, you must pay the Medicare levy regardless of whether you hold a private hospital policy. You’re only exempt if you meet the criteria set by the ATO.
Meet our health insurance expert, Steven Spicer
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.
Want to know more about health insurance?
1 Compare the Market – An alarming number of Aussies don’t know about the surcharge that can sting next tax time. Published July 2026.
2 Compare the Market – Just got a pay rise? Don’t let this rule catch you out at tax time. Published May 2025. Accessed July 2026.
3 Compare the Market – Household Budget Barometer 2025. Published October 2025. Accessed July 2026.
4 Australian Government, Australian Taxation Office: Medicare levy. Updated June 2026.
5 Australian Government, Australian Tax Office – Medicare Levy Surcharge. Updated June 2026.