Written by Australia’s Medicare health system is considered one of the best in the world, with the Commonwealth Fund ranking us third overall among 11 similar countries. The system is partially paid for by Australians through the Medicare Levy (and Medicare Levy Surcharge), which is a percentage tax on your income which helps to fund public health care.
Find out how much you may need to pay for the Medicare Levy, whether you need to pay the Medicare Levy Surcharge, if you qualify for an exemption and what other charges are involved if you don’t have private health insurance right here with Savvy in our helpful guide.
What is the Medicare Levy and how much is it?
The Medicare Levy is a compulsory tax you pay each year on top of your standard income tax, which assists to fund Australia’s public health system. If you’re employed, your employer may take out an amount each payday to cover the Levy. However, if you’re self-employed, you’re responsible for paying the Levy in the same way you pay income tax. The ATO automatically calculates how much you’re due to pay when you submit your tax return. However, if you wish to find out how much this might be in advance of submitting your tax return, you can use a Rebate Calculator to find out.
The Medicare Levy is set at a standard 2% of your taxable income. For example, if you earn $75,000 p.a., you are required to pay $75,000 x 0.02, which equals $1,500. Therefore, the higher your taxable income, the more you’ll pay for the Medicare Levy.
What is the Medicare Levy Surcharge?
The Medicare Levy Surcharge (MLS) is an additional amount you’re required to pay in addition to the Medicare Levy to contribute towards Australia’s health system if you don't hold a private health insurance hospital cover policy. It only applies to singles who earn over $90,000 each year and families who earn above $180,000. The amount of the surcharge is dependent on your income and increases from 1% to 1.5% of taxable income as your annual earnings increase.
How much you’ll have to pay in relation to your income is as follows:*
| Base tier taxable income | Tier 1 income | Tier 2 income | Tier 3 income | |
|---|---|---|---|---|
|
Single threshold |
Up to $93,000 |
$93,001 to $108,000 |
$108,001 to $144,000 |
$144,001 or more |
|
Family threshold |
Up to $186,000 |
$186,001 to $216,000 |
$216,001 to $288,000 |
$288,001 or more |
|
Medicare Levy surcharge rate |
0% |
1% |
1.25% |
1.5% |
*Thresholds and amounts correct as of the 2023-24 financial year, but you should check with the ATO, as changes may occur. The family threshold increases by $1,500 for each dependent child after the first.
Are there any Medicare Levy exemptions or reductions?
Most Australians have to pay the Medicare Levy; it is a compulsory payment. However, there are some reductions and exemptions to paying the Medicare Levy. These are largely designed to assist low-income earners.
Medicare Levy reductions
The reductions you may be entitled to as a result of a low income are as follows:*
- If your taxable income is equal to or less than $23,365 p.a. as a single person, you do not have to pay the Medicare Levy
- If you are a senior or pensioner (entitled to receive the seniors and pensioners tax offset, SAPTO) and your income is $36,925 p.a. or less, you do not have to pay the Medicare Levy
- If you’re a single earning between $23,365 p.a. and $29,207 p.a., the amount of Medicare Levy you will have to pay is reduced
- Seniors and pensioners entitled to SAPTO earning between $36,925 p.a. and $46,157 p.a. will also pay a reduced amount of Medicare Levy
- If you’re a single parent, you may also be entitled to a reduction based on your family's taxable income and the number of children or dependents under your care
Medicare Levy exemptions
Exemptions which exclude you from having to pay the Medicare Levy are granted on three category grounds:
Medical exemptions (Category 1)
To qualify for either a full or partial exemption from paying the Medicare Levy on medical grounds, you have to satisfy two conditions: medical grounds and care of dependents.
- Medical grounds – you must have been diagnosed with a Category 1 medical condition, which includes such categories as being a blind pensioner, in receipt of a Centrelink sickness allowance, being a member of the Australian Defence Force, or being in receipt of a Veterans’ Affairs Repatriation Gold Health Care Card
- Dependents – there are various complex rules regarding those who care for dependents (who may be exempt from paying the Levy or in another exemption category)
Separated couples, and those who are sharing custody of dependent children, can submit a family agreement to the ATO including a statement about how Medicare Levy exemptions are to be shared.
Foreign resident status exemption (Category 2)
Foreign residents for tax purposes can claim a full exemption from the Medicare Levy. If you were a foreign resident for just a portion of the year, you can claim an exemption for that part period. This only applies if you either didn’t have any dependents, or your dependents were in a Medicare Levy exemption category.
Not entitled to receive Medicare benefits (Category 3)
If you have a Medicare Entitlement Statement stating you were not entitled to Medicare benefits for either part or the whole of the financial year, you may not have to pay the Medicare Levy. This may apply to international foreign students studying in Australia, temporary overseas visitors to Australia holding certain visa categories, members of a diplomatic mission or consular post in Australia and others.
*All figures are correct as of February 2023. However, rules may change, so you should check with the ATO and your tax agent to confirm your current eligibility.
What are the benefits of having private health insurance?
Won’t have to pay the MLS
By taking out private health insurance, specifically hospital cover, you may not be required to pay the MLS for the period you hold eligible hospital cover (even if you earn over $90,000 p.a.). To avoid paying the MLS for the period you have cover, you must have held a private health insurance hospital cover policy with a maximum excess of $750 or less for the full or part of the previous financial year.
Choose your own doctor and treatment time
Having appropriate private health insurance gives you more choices. It may enable you to choose which doctor treats you and avoid sitting on a public hospital waiting list. The convenience of being able to schedule hospital care at a time of your choosing is a very important consideration for busy Aussies who may be juggling work, family and parenting responsibilities.
Be treated in a private hospital
Appropriate private health insurance may enable you to receive treatment in a private hospital or a private bed in a public hospital. This will depend on the availability of private health facilities in your particular region. You may even be able to have your own private room and not have to share with others when receiving hospital treatment, which again depends on local availability.
Save money on the cost of extras treatment
If you need to use the services of dentists, chiropractors, physiotherapists and more, you may save hundreds of dollars per year by having private health extras cover. Extras policies can refund you part of the cost of visiting these specialists, ranging from a rebate of 50% up to 75% or even 100% of the cost of basic dental treatments, optical and glasses or contact lenses. You can also save on the cost of hearing aids too under some policies.
Enjoy a range of other benefits
Many health funds offer plenty more beyond refunds on the cost of paying for health treatment. Such additional benefits may include a phone health line, where you can talk to a qualified nurse 24/7, preventative health programs such as weight loss or quit smoking programs and rewards programs which may offer shopping deals, cheap movie tickets and much more. You may also wish to consider whether to go with a not-for-profit health fund or another fund which is for-profit.
More of your frequently asked questions about the Medicare Levy
If you're employed and pay tax under the ‘pay as you go’ (PAYG) system of taxation, your employer will likely make regular deductions from your pay which will cover the Medicare Levy. However, if you’re self-employed or a contractor, you may have to make arrangements to pay your Medicare Levy when you submit your tax return.
The Lifetime Health Cover (LHC) loading is an addition to the cost of your hospital insurance which is added if you don’t take out hospital insurance before you reach the age of 30. It equates to a 2% loading for each year you’re aged over 30 without private health cover, capped at a 70% loading. You will be required to pay this additional loading for a maximum of ten years.
No – you can claim your health insurance rebate back at tax time, but you also have the choice of asking your health fund to reduce your health insurance premiums on a monthly basis to take the rebate amount you’re entitled to into account. This means you'll pay less on your health premiums monthly, rather than receiving a lump sum back after you’ve completed your tax return.
Yes – if you’re an international student who isn’t entitled to receive Medicare benefits, you may be required to pay for Overseas Student Health Cover to get your student visa. However, if you have this cover, you may well be exempt from paying the Medicare Levy, in which case you can claim back the deductions at tax time.
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