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Australia has a universal, publicly funded health insurance scheme known as Medicare, which means that every Australian, alongside a small number of eligible international visitors, can access free or low-cost treatment.
Of course, health care is not technically free—Australians pay for it, but as a regular deduction from employment incomes known as the Medicare levy, rather than at the time of treatment. It is separate from any private health insurance you may elect to take out, and it helps fund the crucial services that underpin hospital and emergency treatment.
The arrangement is so effective in removing cost barriers to healthcare that Australia was ranked first among leading OECD countries for equity and healthcare outcomes in 2024, closely followed by The Netherlands and the UK. Perhaps unsurprisingly, the US ranked last.
The Medicare levy is also means-tested so that healthcare remains free for the lowest-income earners.
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How the Medicare Levy Works
The formula is simple: the Medicare levy is 2% of a person’s taxable income. It is collected from employees in the same way income tax is collected. Generally, the pay as you go (PAYG) amount that an employer withholds from a salary or wages includes an amount to cover the Medicare levy. The Australian Taxation Office (ATO) does its calculations on the actual amount owed when an income tax return is lodged, but usually there will not be a big disparity.
The levy is in addition to other forms of income tax. It is listed on the Notice of Assessment or a tax refund estimate at the end of every financial year.
Who Pays the Medicare Levy?
Everyone who earns more than $29,033 in the most recent tax year is required to pay a 2% Medicare levy. There are a few limited exceptions to this.
Who Doesn’t Pay the Full Medicare Levy?
Those who earn equal to or less than $26,000 are entitled to a full reduction and do not need to pay the Medicare levy in the 2023-24 financial year. The cut-off is $41,089 for seniors and pensioners who are entitled to the seniors and pensioners tax offset (SAPTO).
Reductions are also available for a single person without dependants who has a taxable income between $26,000 and $32,500 (or $36,925 and $51,361 for seniors and pensioners entitled to SAPTO). Families who earn less than $43,846 are also exempt, while reductions are available to those families earning between $43,846 and $54,807.
It is possible to qualify for a reduction even if your taxable income is higher than the threshold if you have sole care of one or more dependent children, your spouse died during the income year and you do not have another spouse on 30 June, or you are entitled to an invalid and invalid carer tax offset.
The best way to ascertain upcoming obligations at the end of the financial year is to use the Medicare levy calculator on the ATO website. However, the ATO notes that in some cases its calculations will not be accurate, such as if exempt foreign employment income was received. It may be necessary to check with an accountant if you wish to know in advance.
What is the Medicare Levy Exemption?
Total exemptions are available for three reasons: the person is a foreign resident, they meet certain medical requirements, or is not entitled to Medicare benefits.
Full and half exemptions are also available. We recommend visiting the ATO’s series of guides on exemptions from and reduction on the Medicare Levy.
Is the Medicare Levy Different from the Medicare Levy Surcharge?
Yes, and this is where things become a little bit complicated. The Medicare Levy Surcharge (MLS) is an extra tax in addition to the Medicare levy, and it applies only to high income earners. The MLS was introduced in 1997 as an incentive for people on higher incomes to take out private health insurance and not overburden the public system. It is, in effect, a penalty for not taking out private health insurance if you can afford it, and represents the carrot-and-stock approach of Australia’s public and private dual healthcare system.
A single person who earns more than $90,000 and lacks private health insurance is required to pay the surcharge, along with families who earn at least $180,000. It is an extra 1 to 1.5% of a person’s taxable income.
In a way, the levy effectively makes some basic private health insurance policies ‘free’ because it saves the high-income earner from having to pay the levy at tax time.
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Frequently Asked Questions (FAQs)
Does everyone have to pay the Medicare levy?
Everyone who earns more than $29,033 in the most recent tax year is required to pay a 2% Medicare levy. There are exemptions and reductions available to those who earn more, but the circumstances are limited.
At what income does the Medicare levy start?
For the 2023-24 income year, the threshold begins at $26,000; whereas the family income threshold for the 2023-24 income year is $43,846.
How do I avoid the Medicare levy?
The vast majority of Australian taxpayers pay the Medicare levy, even if they have private health insurance. If you keen to avoid the Medicare Levy Surcharge, however, which applies to high-income owners, then your best bet is to take out the required private health insurance policy.
Has the Medicare levy gone up?
The various thresholds increase each year to factor in the Consumer Price Index (CPI). Always check the ATO’s website to ascertain current threshold figures.
Who is eligible for Medicare levy reduction?
A single person who earns less than $26,000 in FY23/24 will pay no levy at all. Singles earning between $26,226 and $32,500 will pay a reduced amount.
For seniors and pensioners entitled to the seniors and pensioners tax offset (SAPTO), the threshold is $41,089. Those who earn between $41,089 and $51,361 as a senior or pensioner are entitled to a reduction.
The threshold for families is currently $43,846. Families who earn between $43,846 and $54,807, annually (or between $57,198 and $$71,49 if entitled to the SAPTO), plus an upper limit threshold of $5,034 for each dependent child.
