What is the Medicare Levy?
The Medicare Levy is not the same as the Medicare Levy Surcharge. Here's everything you need to know.
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Despite their confusingly similar names, the Medicare Levy should not be mixed up with the Medicare Levy Surcharge (MLS). The Medicare Levy is charged at 2% of your annual income. It's paid by people working in Australia earning over $27,068, and it goes toward the cost of the public health system.
What is the Medicare Levy rate?
The Medicare Levy of 2% is applied to your taxable income if you earn above the threshold. For instance, the 2016-17 threshold is $27,068 per year, which means if you earned $75,000, your Medicare Levy would be $1,500. If your income is below the threshold, you may not have to pay it at all. You pay a Medicare levy in addition to the tax you pay on your taxable income.
To find out how much you’ll need to pay, check out the ATO’s Medicare levy calculator. This allows you to estimate your Medicare Levy for the past four income years. Just have the following details handy:
- Your taxable income
- Your spouse or partner’s taxable income (if any)
- If you’re eligible for a Medicare Levy exemption (see below), the number of days the exemption applies"
Is the threshold the same for everyone?
Australian taxpayers who earn above the following 2016-2017 thresholds must pay the Medicare Levy:
- $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.
How can I be exempt from paying it?
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.
What about the Medicare Levy Surcharge?
The Medicare Levy Surcharge is a charge between 1% and 1.5% of your income every tax year. The rate you pay is based on which annual income threshold you fall into. The main way people avoid the surcharge is by taking out private health insurance with an approved level of hospital cover.