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.
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.