What is the Medicare Levy?
The Medicare Levy, which helps to fund Medicare, is a 2% income tax that's paid by most Aussie tax payers. There are some exemptions though.
Key takeaways
- The Medicare Levy is a 2% tax on your entire taxable income to fund Medicare.
- The Levy is charged at tax time, but is on top of your marginal tax rate.
- There are some exemptions for low-income earners, temporary residents, seniors and some other categories.
What is the Medicare Levy?
The Medicare Levy is a 2% tax that goes towards funding the public health system. You pay a Medicare Levy in addition to the tax you pay on your taxable income. The majority of Australian tax payers will have to pay the Medicare Levy.
A couple of things are worth remembering:
- The Medicare Levy is applied separately from your income tax.
- Unlike income tax, which has a tax-free threshold, the Medicare Levy applies to your entire taxable income.
- The Medicare Levy pays for Medicare - it's the main way Australia funds the public healthcare system.
- If you're a salaried employee, your Medicare Levy will be deducted from your regular paycheck.
Medicare Levy vs Medicare Levy Surcharge
The Medicare Levy Surcharge is different to the Medicare Levy - unfortunately, the similar names lead to a lot of confusion. The Medicare Levy Surcharge, or MLS, is an additional tax for high earners that don't have private hospital cover.
Specifically, it only applies if you earn over $101,000 a year ($202,000 for families) and don't take out private hospital cover. It was put in place to encourage more Australians to take out private health insurance and alleviate the strain on the public healthcare system.
While the Medicare Levy has only a few specific exemptions, you can avoid the MLS entirely by taking out private health insurance.
How much is the Medicare Levy?
The Medicare Levy is a flat 2% income tax for any earnings above the threshold set by the Australian Tax Office (ATO). It applies to your entire taxable income, and is calculated totally separate from your income tax.
For example, if your taxable income is $50,000, the Medicare Levy will be $1,000. If your taxable income is $100,000, it will be $2,000. Pretty simple maths on this one (for once!).
Something to note is that salaried employees will have this taken out of their regular paycheck along with their income tax deductions. This means that most Aussies won't have to pay the Medicare Levy as an additional out-of-pocket expense at tax time.
Medicare levy reductions for low earners
Not everyone has to pay the full Medicare levy. Unlike regular income tax, the Medicare levy doesn't technically have a tax free threshold for low earners, but it does have an exemption range, where low earners are not required to pay the levy. Listed below are the 2024/2025 thresholds for singles, families and seniors.
Thresholds for singles
If you're single and your income is below $27,222, you won't pay the levy. You'll pay part of the Medicare Levy if your taxable income is between $26,000 and $34,027. The full 2% applies once you earn over $34,027.
Thresholds for seniors
For seniors who are eligible for the seniors and pensioners tax offset (SAPTO), you wont' pay the levy if you earn under $43,020. You'll pay part of the Medicare Levy if your taxable income is between $43,020 and $53,775. The full 2% applies once you earn over $53,775.
Thresholds for families
Non-SAPTO: For couples or single-parent families, you won't pay the Medicare Levy if you earn less than $45,907. You'll pay part of levy if you earn between $45,907 and $57,383 (the lower threshold increases $4,216 per dependent child). The full 2% levy won't be charged until you earn at least $57,383 as a family.
Non-SAPTO: For couples or single-parent families eligible for the seniors and pensioners tax offset (SAPTO), you won't pay the Medicare Levy if you earn less than $59,886. You'll pay part of levy if you earn between $59,886 and $74,857 (the lower threshold increases $5,270 per dependent child). The full 2% levy won't be charged until you earn at least $74,857 as a family.
Calculate your levy
If you're in that awkward spot between the lower and upper threshold, it can be a bit tricky to estimate your Medicare Levy. The ATO's Medicare Levy calculator will let you estimate your Medicare Levy with the following details:
- Your taxable income
- Your spouse or partner's taxable income (if any)
- If you're eligible for a Medicare Levy exemption
Remember that salaried employees will have their Medicare Levy deducted from their paychecks, so most people don't actually need to think to hard about this.
Medicare Levy exemptions
The Medicare Levy is fully exempt to some Aussie taxpayers. Depending on your circumstances, you may be entitled to a full or partial exemption.
You're exempt from paying the Medicare Levy in the 2024-2025 year if:
- You are a foreign resident for tax purposes
- You are not entitled to Medicare benefits
- You qualify for a medical exemption
- You earn under the low income thresholds
Full and half exemptions are available for blind pensioners, those on a Centrelink sickness allowance, and anyone with full free medical treatment under Defence Force arrangements or a Veterans' Affairs Repatriation Health Card (Gold Card). The requirements to qualify for these exemptions will depend on your marital status and whether you have any dependents or not.
It's worth remembering that even though you may not qualify for a Medicare Levy reduction based on your single income, you may still be eligible for a reduced levy based on your family's taxable income. If you're still unsure whether you qualify for an exemption head over to the Australian Tax Office or have a chat with your tax agent or accountant.
How to claim Medicare Levy exemption
You can claim the Medicare Levy exemption when you lodge your tax return. You'll be asked:
- What your annual income was (which will help determine your Medicare Levy exemption entitlements)
- How many dependent children you had during the year
- How many days you can claim a full exemption and how many days you can claim a half exemption
- If you had a spouse at any time during the tax year, married or de facto
- If you're entitled to any seniors tax offset
Should you get private health insurance on top of Medicare?
Whether or not you have private health insurance doesn't actually impact your Medicare Levy liabilities. Rather, it's the MLS that has a relationship with hospital cover. However, thinking about the Medicare Levy is a good time to this about your health insurance coverage more generally.
Unfortunately, Medicare doesn't cover everything. That's where private health insurance can help fill in the gaps. It can cover you for things like ambulance transportation, dental and optical, and often gives you access to treatment quicker than the public system.
If you want cover for those things and more, take a look at some of the health insurance policies below.
All prices are based on a single individual with less than $101,000 income and living in Sydney.
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