What is the Medicare levy?

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The Medicare levy is an amount 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.

Established in 1984, this public health system is known as Medicare.

what is the medicare levy

How is the Medicare levy calculated?

The Medicare levy rate for the 2024/25 income year is 2% of taxable income. This is in addition to the normal income tax rate. So, if you pay tax at the current top rate of 45%, your actual tax rate is 47% including the levy.

Relief from the Medicare levy is provided to certain low-income earners.

For example, no levy is payable by a person whose taxable income for 2023/24 is $26,000 or less. Where taxable income exceeds $26,000 but does not exceed $32,500, the levy is apportioned on the excess over $26,000.

For example, if your taxable income was $27,000, the Medicare levy will be $272.40. You can calculate your Medicare levy liability by using the ATO's Medicare levy calculator.

The higher family threshold applies if either:

  • you have a spouse
  • are entitled to an invalid or invalid carer tax offset in respect of your child
  • you had sole care of one or more dependent children or students (up to the age of 25)

In these cases, no levy is payable if the family income does not exceed $43,846. That threshold amount increases by $4,027 for each dependent child or student.

The Medicare levy family threshold rates are set out in the table below:

If family income is above the threshold but your own taxable income is below the individual threshold, you are still entitled to a reduction or exemption.

For example, John has a taxable income of $12,000. His spouse, Jenna, had a taxable income of $52,000.

Their combined family income is $64,000 which exceeds the 2023 upper income limit ($54,807).

John is nevertheless exempt from the levy for the year because his taxable income is below the individual threshold of $26,000.

Jenna must pay the full levy of $1040 (2% of $52,000) since her taxable income exceeds the individual threshold and the combined family income exceeds the family threshold with one child.

Who is exempt from the Medicare levy?

Some people (described as "prescribed persons") are fully or partially exempt from the Medicare levy. These include:

  • People who were non-resident for the whole year.
  • People who do not qualify for Medicare benefits. This would apply to a temporary resident of Australia, provided you do not have any dependents - a spouse or children under 21 - or your dependents are also exempt.  If you fall into this category, you'll need to obtain a Medicare Entitlement Statement from the Department of Human Services and advise the ATO that you have that statement when you lodge your tax return (though you don't actually need to send it to the ATO with the return). Residents of the United Kingdom, Northern Ireland, Italy, Malta, Sweden, the Netherlands, Finland, Norway, Belgium or Slovenia do not qualify for the exemption because these countries have a Reciprocal Health Care Agreement with Australia. If you're a resident of one of those countries, you do qualify for Medicare benefits and must pay the levy.
  • You are entitled to a medical exemption because:
    • You are a blind pensioner
    • You received a sickness allowance from Centrelink
    • You had a defence force Gold Card entitling you to free medical treatment

If you qualify under this category, you may only be entitled to a half exemption depending on the status of your dependents.

For example, Henry serves in the Australian army for the entire income year and is entitled to full free medical treatment. Taxable income is $48,000 for the 2024 year.

Henry's wife, Amanda, is not entitled to full free medical treatment and does not fall within any of the exemption categories.

Amanda has no taxable income and will therefore pay no Medicare levy.

They have one child who is also not in an exemption category.

Henry is in a Medicare exemption category for the whole year but his spouse and child are not. Therefore, Henry only qualifies for the half exemption.

If Amanda earned $55,000, Henry would be entitled to the full exemption as his spouse has to pay the Medicare levy.

Correction: an earlier version of this story stated that Australians who pay the top tax rate of 45% will pay 49% including the Medicare levy. The correct figure is 47%.

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Mark Chapman is director of tax communications at H&R Block, Australia's largest firm of tax accountants, and is a regular contributor to Money. Mark is a Chartered Accountant, CPA and Chartered Tax Adviser and holds a Masters of Tax Law from the University of New South Wales. Previously, he was a tax adviser for over 20 years, specialising in individual and small business tax, in both the UK and Australia. As well as operating his own private practice, Mark spent seven years as a Senior Director with the Australian Taxation Office. He is the author of Life and Taxes: A Look at Life Through Tax.
Comments
Philip Roper
July 27, 2024 12.10pm

Mr Chapman or the publisher needed to proof-read his article before publishing it. The top tax rate of 45% + 2% Medicare is 47%, and not the "actual tax rate" of 49%. (Note, that even with the maximum Medicare Levy Surcharge of 1.5%, the "actual tax rate" or marginal tax rate is still only 48.5%, and still short of the 49% quoted by Mr Chapman).

Money magazine
Verified
July 29, 2024 6.00pm

Hi Philip,

Thank you for bringing this to our attention. You are right - the correct figure is 47%. The story has been updated to reflect this.

- Money team

Steve Hill
July 27, 2024 12.36pm

I'd be a little concerned about tax advice from these guys after reading this article. How does 45% (top MTR) + 2% (Medicare levy) result in tax payable at 49%. (Even allowing for the Medicare Levy Surcharge you won't pay at 49%). And can someone please tell me who Joe is in the last Case Study?