What is the Medicare Levy, how much does it cost and how does it differ from the Medicare Levy Surcharge? Find out in this detailed guide.
Medicare, Australia’s public health service, is funded in part by taxpayers who pay a tax known as the Medicare Levy. The levy is calculated as a percentage of your taxable income and must be paid by most Australian residents who earn above a certain income threshold each year.
So, how much is the Medicare Levy and is there any way to avoid it? Read on to find out.
What is the Medicare Levy?
Medicare is Australia’s public health service, providing Australian residents with free health care and a number of other medical benefits. Medicare is partly funded by the Medicare Levy, a tax paid by Australian residents who earn above a certain threshold. This levy is calculated as a percentage of your taxable income.
How much is the Medicare Levy?
The Medicare Levy is 2% of your taxable income and applies to taxpayers who earn an annual income above the 2016-17 Medicare Levy threshold of $27,068 per year. For example, if you earn $75,000 a year, your Medicare Levy would be $1,500.
To find out the amount of the Medicare Levy you’ll need to pay for the most recent tax year, use the ATO’s Medicare levy calculator. This allows you to estimate your medicare levy for the past four income years. Just make sure to have the following details handy:
- Your taxable income
- Your spouse’s taxable income
- If you’re eligible for a Medicare Levy exemption (see below), the number of days the exemption applies
Who pays the Medicare Levy?
Australian taxpayers who earn above the Medicare Levy threshold must pay the Medicare Levy. For 2016-17, the threshold is:
- $27,068 for a single person with no dependents
- $45,676 plus $4,195 for each dependent child you have for families
However, if you’re a low-income earner you may be eligible for a Medicare Levy reduction. If your annual taxable income is below a specified threshold, your Medicare levy will be reduced.
For 2016-17, you will only have to pay part of the Medicare Levy if your taxable income is between $21,655 and $27,068 (or between $34,244 and $42,805 for seniors and pensioners entitled to the seniors and pensioners tax offset).
It’s also 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.
Who doesn’t have to pay the Medicare Levy?
People who earn less than a specified amount qualify for a Medicare Levy exemption. For the 2016-17 income year, you will not have to pay the Medicare Levy if your taxable income is $21,655 or less ($34,244 for seniors and pensioners entitled to the seniors and pensioners tax offset).
You will also be exempt from paying the Medicare Levy if you:
- Qualify for a medical exemption. Full and half exemptions are available for blind pensioners, those on a Centrelink sickness allowance, and people who are entitled to full free medical treatment for all conditions under Defence Force arrangements or a Veterans’ Affairs Repatriation Health Card (Gold Card). The requirements you must meet to qualify for this exemption vary depending on whether you are married or single, and whether you have any dependants.
- Qualify for a foreign residents exemption. If you were a foreign resident for the entire income year, you can claim a full Medicare Levy exemption. If you were only a foreign resident for part of the year, you can still claim an exemption if you didn’t have any dependants or all your dependants were in an exemption category.
- Were not entitled to Medicare benefits. If you were not an Australian citizen during the income year, or if you were a temporary resident and you did not have any dependants (or they were in an exemption category), you will not have to pay the levy.
How is the Medicare Levy different from the Medicare Levy Surcharge?
Despite their confusingly similar names, the Medicare Levy should not be confused with the Medicare Levy Surcharge (MLS). The MLS is a tax imposed by the Australian Federal Government on Australian taxpayers who earn above a certain income threshold but do not have any private hospital cover. It’s designed to encourage more people to take out private hospital cover and therefore reduce the strain on the public hospital system.
The MLS is payable in addition to the Medicare levy.
How much is the Medicare Levy Surcharge?
The MLS is calculated at a rate of between 1% and 1.5% of your income for MLS purposes, which is different to the taxable income used to calculate the amount of Medicare Levy you must pay. A special definition of income is used to calculate your MLS liability; not only does it take into account your taxable income but also reportable fringe benefits, total net investment losses, reportable super contributions and exempt foreign employment income.
The table below outlines the MLS rate that applies based on your income level for the period from 1 April 2017 to 31 March 2018:
|Medicare Levy Surcharge|
|Annual income (Singles) |
Annual income (Families)
|$90,000 or less|
$180,000 or less
|$90,001 – $105,000|
$180,001 – $210,000
|$105,001 – $140,000|
$210,001 – $280,000
|More than $140,000|
More than $280,000
How does the ATO calculate income for the Medicare Levy Surcharge?
The ATO takes a range of factors into account when determining your MLS income and whether you need to pay this surcharge:
- Taxable income. Includes the net amount paid towards family trust distribution tax.
- Reportable fringe benefits. Includes all those listed on your PAYG payment summary.
- Total net investment losses. Includes net financial investment losses and net rental property losses.
- Super contributions. Includes deductible personal super contributions and reportable employer super contributions.
- Spousal trust income. If you have a spouse, their share of the net income of a taxable trust will be taken into account.
- Exempt foreign employment income. Only if you or your spouse received a taxable income of $1 or more.
Who pays the Medicare Levy Surcharge?
You will need to pay the MLS if you do not hold approved hospital cover with a registered private health fund and:
- You’re a single person and your annual income for MLS purposes is greater than $90,000; or
- You’re a couple or family and your combined annual income for MLS purposes is greater than $180,000.
It’s also worth noting that if your family exceeds the MLS income threshold and you don’t have private hospital insurance that covers yourself, your spouse and your children, you will still need to pay the MLS.
For example, let’s say you and your spouse exceed the combined MLS income threshold. While you have private hospital cover for yourselves, you haven’t yet taken out cover for your two young children. In this scenario, both you and your spouse would need to pay the surcharge.
How can I avoid the Medicare Levy Surcharge?
Don’t want to pay the MLS? Well, if you earn less than $90,000 (for singles) or $180,000 (for couples/families) per year, you won’t have to.
If your income exceeds the limits listed above, you can avoid paying the MLS by taking out private health insurance. You can’t just take out any old policy though. It must:
- Provide private patient hospital cover
- Have a maximum payable excess per year of $500 for singles and $1,000 for couples and families
- Be purchased from a registered Australian health fund
You’ll need to maintain this appropriate level of cover for the full year in order to avoid paying the surcharge.
You also won’t have to pay the MLS in the following circumstances:
- If you’re in a Medicare Levy exemption category (see above).
- If your income exceeds the MLS threshold but you had already purchased private hospital insurance with a total yearly excess of greater than $500 for singles or $1,000 for couples/families on or before 24 May 2000.
Earning over $90,000 a year? Avoid a nasty surprise at tax time by taking out hospital cover.
The Medicare Levy Surcharge (MLS) is a tax imposed by the Federal Government on Australians earning above a specified amount who don’t have adequate private health insurance. Its purpose is to take pressure off the public health system by encouraging those who can afford private health cover to purchase a policy.
Compare hospital cover from over 30 funds.
Medicare Levy and Medicare Levy Surcharge FAQs
What’s the difference between the Medicare Levy and the MLS?
The Medicare Levy is a tax that applies to most Australians at a standard rate of 2%. The MLS is an additional tax that is applied on top of the Medicare Levy for high-income earners who do not have any private hospital cover.
How can I find out the amount of the MLS I need to pay?
If you need to pay the MLS, it will be included with the Medicare Levy and shown on your income tax notice of assessment as ‘Medicare levy and surcharge’.
Will taking out extras cover affect whether or not I pay the MLS?
No. To avoid the MLS, you must take out an appropriate level of private patient hospital cover. Standalone extras policies do not include hospital cover.
Does travel insurance provide private patient hospital cover?
No. You will need to take out private hospital health insurance with an Australian health fund.
I’m suspending my health insurance while I go overseas. Will I need to pay the MLS?
If you cancel or suspend your private health cover for a period of time while you go overseas, you are considered to not have an appropriate level of hospital cover during that time and you then may be liable for the MLS. However, your income will need to exceed the MLS threshold and you must still be an Australian resident for tax purposes in order for the surcharge to apply.
If I take out private hospital cover just before tax time am I exempt from the MLS for the whole year?
Unfortunately the MLS is calculated on a day-by-day basis to stop people from doing this. If your income has moved above the MLS threshold during the year it's still worth considering cover, since the days you have cover are deducted from your surcharge at tax time.
Additionally, if you've just turned 31 you can also avoid the Lifetime Health Cover loading by taking out hospital cover before the end of financial year.
Why does my hospital cover have to have a low excess?
Since an excess lowers the cost of hospital cover in exchange for paying a lump sum when you’re admitted to hospital, this requirement prevents people on high incomes from choosing a maximum excess to keep their premium low and then getting treatment at a public hospital, which defeats the purpose of the MLS.
How can I find out whether my hospital cover is appropriate to help me avoid the MLS?
Contact your health fund for details.