What is the Medicare levy?
Put very simply, the Medicare levy is an amount that you pay in addition to the tax you pay on your taxable income.
The Medicare levy helps fund some of the costs of Australia’s public health system (Medicare). The Medicare levy is currently 2% of your taxable income.
Your Medicare levy is calculated when you lodge your income tax return and it will be displayed clearly on the tax calculation page of your tax return. Generally speaking, the pay as you go amount that your employer withholds from your salary or wages includes an amount to cover the Medicare levy.
Example: Calculating Medicare Levy for Sarah
Sarah earns an annual income of $60,000 and has $800 in allowable deductions. She is single, has no dependents, is not eligible for the Seniors and Pensioners Tax Offset (SAPTO), and does not qualify for any Medicare levy exemptions or reductions.
- First, Sarah calculates her taxable income: Taxable Income = Assessable Income – Allowable Deductions
- Taxable Income = $60,000 – $800
- Taxable Income = $59,200
- Next, she determines the amount of Medicare levy she needs to pay. The Medicare levy rate is 2% of her taxable income: Medicare Levy = Taxable Income x Medicare Levy Rate
- Medicare Levy = $59,200 x 0.02
- Medicare Levy = $1,184
Sarah’s Medicare levy is $1,184, which will be automatically calculated and deducted when she completes her tax return.
Medicare Levy Exemption
If you were a foreign resident for tax purposes for the full financial year, you can claim a full exemption from the Medicare levy
If you were a foreign resident for tax purposes for only part of the financial year, you can still claim a full exemption from the Medicare levy for that period if:
- you didn’t have any dependants for that period
- all your dependants were in a Medicare levy exemption category for that period.
You claim this exemption when you lodge your income tax return. This exemption is known as exemption category 2 on your tax return when you complete the Medicare levy section.
Check your tax residency status here in order to determine if you are liable to claim a full or part Medicare levy exemption.
Medicare Levy Reduction
If your taxable income falls below a specific amount, your Medicare levy is reduced, and you may even be exempt from paying it.
In the 2022–23 financial year, you are exempt from the Medicare levy if your taxable income is equal to or lower than the lower threshold.
If your taxable income falls within the range between the lower and upper thresholds, your Medicare levy will be reduced. The exact reduction is calculated when you file your tax return.
Medicare Levy Surcharge
If you’re required to pay the Medicare levy and do not have an appropriate level of private patient hospital cover, or if your income exceeds a certain threshold, you may also be liable for the Medicare levy surcharge (MLS). The MLS is an additional payment on top of the Medicare levy.
The rate for the MLS (1%, 1.25%, or 1.5%) is calculated based on your taxable income, total reportable fringe benefits, and any income on which family trust distribution tax has been paid.
You won’t pay the MLS if your income is below the base income threshold, which is $90,000 for singles and $180,000 (plus $1,500 for each dependent child after the first) for families.
Changes in your circumstances, such as income, marital status, dependents, or private health insurance, can affect your MLS liability. Traveling overseas and cancelling your private patient hospital cover during that time may also make you liable for the Medicare levy surcharge.
So – if the medicare levy surcharge is imposed when you earn over the threshold and don’t have appropriate private health cover – IS PRIVATE HEALTH INSURANCE IN AUSTRALIA REALLY WORTH IT?
