What is the Medicare Levy?
Medicare Levy is a 2% additional income tax that all Australian tax residents must pay.
Taxpayers do not need to pay it as a one-off payment
PAYG is the amount taken off gross salary by the employer and submitted to ATO. Withholding or pay-as-you-go (PAYG) tax components include a portion of the Medicare levy.
Therefore, for a salaried person, a levy would be deducted from their gross pay.
Why is the purpose of levying tax?
The purpose of the levy is to provide funds for Medicare operations, Australia’s Universal Healthcare Insurance scheme. This scheme helps provide citizens and permanent residents access to a wide range of excellent healthcare facilities at a minimum or no additional cost.
Have you recently migrated to Australia and assumed that health care here was “free”?
This might have come to you as a minor shock. It never was free and would not be given the substantial medical expenses.
However, due to the upfront payment of levy from income. It makes it far easier for residents to keep up to date with their payments—all thanks to the fantastic taxation system in Australia.
Regular small levy deductions from your income act as prepaid insurance for your access to exceptional health services.
Who needs to pay?
Primarily, the levy is deducted from the income at source. Any Australian resident paid a salary would have a 2% taxable income withheld from gross salary to cover for their Medicare levy tax.
Levy is in addition to the income tax. As per ATO regulations, every resident must contribute to the Medicare levy. And therefore, no individual resident can be spared.
If you have a source of income in Australia, it would be taken out as a percentage before the net amount hits your accounts.
However, a reduction or exemption can be claimed in a few exceptional circumstances. For example, if you are a foreign resident on a temporary visa, someone not eligible for Medicare benefits, or an Australian person with income lower than the threshold. The table below provides further details for exempt personnel.
Can anyone be exempt from paying the Levy?
ATO allows a few circumstances in which exceptions can be claimed for the levy payments.
|If individual income < $23,365
|Fully reduced – Completely Exempted
|If combined family income < $43,021
|Fully reduced – Completely Exempted
|Medical exemption conditions
|Exemptions availability depended on
|Foreign Resident for tax purposes
|Full Exemptions are claimable for
Full and part-year foreign residents
|Temporary resident for Medicare
|Full exemptions are available by
submitting an MES
Check our pay calculator tool to look into how the Medicare levy might change with your income level.
Or you can read more about your Australian tax residency status here.
How is the Levy calculated on your Income?
Medicare levy is calculated on the 2% of your overall taxable Income. You are not required to file it separately while doing your tax returns.
The tax treatment for tax return purposes may differ if you claim a reduction or an exemption from paying the levy.
It is best to discuss your tax residence status with your accountant for a better understanding, as it is one of the complicated tax considerations that an individual should not decide by themself.
Seeking professional assistance is advised in this matter.
Medicare levy Calculator
We have worked out a tool for you to help you calculate an estimate of the total Levy paid by you.
How is the levy calculated for exempted individuals?
If you intend to claim an exemption or reduction in the levy, the amount deducted from withholding tax will be a credit towards your end-of-year tax payable.
This means that your total tax payable at the end of the year will reduce by the excess paid. And you might get a refund for the levy paid.
How can you opt out of the levy?
Temporary and foreign residents can submit a Medicare Entitlement Statement (MES) request at Services Australia to claim their ineligibility for additional tax on their income.
Please note that MES must be applied at each financial year’s end, irrespective of prior approval. You can apply for an MES using the guidance on this page.
Medicare Levy Surcharge?
If an individual’s income exceeds the $90,000 threshold, an additional surcharge would be applicable on top of a nominal 2% rate. This is called Medicare Levy Surcharge; it usually varies from 0-1.5% and is proportional to the increase in income level.
Levy surcharge is a vast topic; we will cover it in detail as we enrich our content. We will discuss in detail how it is calculated, the rates, and who needs to pay. Keep an eye on this page for an update.
You can use this HECS Calculator to Calculate your Medicare Levy and many more.