Who This Guide Is For
This guide is for anyone who files a tax return in Australia and wants to understand the Medicare Levy — what it is, who pays it, how it is calculated, and whether you might qualify for a reduction or exemption.
The Medicare Levy appears on every Australian tax return, but it's one of the most commonly misunderstood items. Many taxpayers assume it's optional (it isn't) or that having private health insurance makes it go away (it doesn't — that's the Medicare Levy Surcharge, which is separate).
We'll walk through the levy rate for FY2025–26, the low-income thresholds that may reduce or eliminate what you owe, how partial-year residency works, and the exemptions available for certain visa holders, medical conditions, and Defence Force members.
What Is the Medicare Levy?
The Medicare Levy is a 2% tax on your taxable income that helps fund Australia's public healthcare system (Medicare). It is not optional — if you are an Australian resident for tax purposes and earn above the relevant threshold, you pay it.
According to the ATO, the Medicare Levy is calculated as 2% of your taxable income, applied after deductions but before tax offsets (except refundable offsets) (ATO guidelines).
The levy is distinct from:
- Medicare Levy Surcharge (MLS) — an extra 1% to 1.5% on top of the levy, payable if you earn above $101,000 (singles) / $202,000 (families) and do not hold an appropriate level of private hospital cover. This is covered in a separate guide.
- Private health insurance rebate — a government contribution towards your premiums, which is entirely separate.
Medicare Levy Rates FY2025–26
| Taxpayer Category | Threshold (Taxable Income) | Levy Payable |
|---|---|---|
| Single — no dependants | $0 – $28,011 | $0 (below threshold) |
| Single — no dependants | $28,012 – $35,013 | 10% of income over $28,011 (phased in) |
| Single — no dependants | $35,014+ | Full 2% of taxable income |
| Family — couple (no children) | $0 – $47,238 | $0 (combined income) |
| Family — couple (no children) | $47,239 – $59,047 | 10% of excess over threshold (phased in) |
| Family — couple (no children) | $59,048+ | Full 2% of taxable income |
| Family — with children | Base threshold + $4,338 (lower) / $5,423 (upper) per dependent child | Adjusted threshold |
| Senior / Pensioner (SAPTO eligible) | $0 – $44,268 (single) | $0 |
| Senior / Pensioner (SAPTO eligible) | $44,269+ | Phased in, then full 2% |
*Note: Thresholds are the ATO's published FY2025–26 figures (ATO guidelines).*
Calculation Example — Single
Scenario: James earns $75,000 in taxable income. He has no dependants and is not eligible for any exemption.
- Medicare Levy = $75,000 × 2% = $1,500
- This $1,500 is added to his tax bill for the year
Calculation Example — Phased-In (Single)
Scenario: Priya earns $30,000 in taxable income. She is single with no dependants.
- Income above threshold: $30,000 – $28,011 = $1,989
- Levy = $1,989 × 10% = $198.90 (reduced rate due to phase-in)
- Without the phase-in, the full 2% would have been $600 — the phase-in saves her $401.10
Medicare Levy Exemptions
You may be entitled to a full or partial exemption from the Medicare Levy if you fall into one of these categories:
1. Medical Exemption
If you have a Medicare Entitlement Statement (MES) or a certificate from Services Australia confirming you are not entitled to Medicare benefits, you may be exempt. This typically applies to:
- Certain temporary visa holders not covered by a Reciprocal Health Care Agreement (RHCA)
- Individuals with specific medical conditions that preclude Medicare coverage
2. Foreign Residents
If you are a foreign resident for tax purposes, you are not liable for the Medicare Levy (and you are also not entitled to Medicare benefits). However, you must correctly declare your residency status.
3. Not Entitled to Medicare Benefits
If Services Australia has issued you a certificate stating you are not entitled to Medicare benefits for all or part of the year, you can claim a full or partial exemption.
4. Defence Force Members
Certain Australian Defence Force (ADF) members may be exempt. Check with the ADF or ATO for your specific circumstances.
5. Partial-Year Exemption
If you were only entitled to Medicare benefits for part of the financial year (for example, you arrived in Australia mid-year and became entitled to Medicare on a specific date), you may claim a partial exemption for the days you were not covered.
Medicare Levy Surcharge (MLS) — Quick Overview
While this guide focuses on the levy itself, the surcharge often causes confusion:
| Income Tier (Singles) | Income Tier (Families) | MLS Rate |
|---|---|---|
| $0 – $101,000 | $0 – $202,000 | 0% (no surcharge) |
| $101,001 – $118,000 | $202,001 – $236,000 | 1.0% |
| $118,001 – $158,000 | $236,001 – $316,000 | 1.25% |
| $158,001+ | $316,001+ | 1.5% |
The MLS is additional to the 2% Medicare Levy. Having private hospital cover eliminates the MLS (but not the base levy).
The MLS is calculated on your income for MLS purposes, which includes taxable income plus reportable fringe benefits and reportable super contributions.
How the Medicare Levy Appears on Your Tax Return
When you lodge your tax return (through myTax or a tax agent), the Medicare Levy is automatically calculated based on:
You do not need to calculate it yourself — the ATO's system applies the correct rate and thresholds. However, you do need to ensure:
- Your Medicare entitlement details are up to date with Services Australia
- You have requested an MES from Services Australia if you believe you are exempt
- Your residency status is correctly declared
Common Mistakes to Avoid
| Mistake | Why It's Wrong | What to Do Instead |
|---|---|---|
| Assuming private health insurance removes the Medicare Levy | Private health cover only removes the Medicare Levy Surcharge, not the base 2% levy | Budget for the 2% levy regardless of your health cover |
| Not updating Medicare entitlement after a visa change | Moving from a 482 visa to PR changes your levy liability | Notify Services Australia immediately when your visa status changes |
| Claiming exemption without an MES | The ATO requires a Medicare Entitlement Statement for medical exemptions | Apply for an MES through myGov before lodging your return |
| Forgetting to include your spouse's income for family threshold | The family threshold is based on combined income | Report spouse income accurately on your return even if they lodge separately |
| Assuming you're exempt because you never use Medicare | Entitlement, not usage, determines your levy liability | Check your Medicare card status — if you're enrolled, you generally pay the levy |
Records to Keep
- Medicare Entitlement Statement (MES) from Services Australia (if exempt)
- Visa grant notices showing dates of Medicare eligibility changes
- PAYG payment summaries showing income amounts
- Notice of assessment from prior years (to track threshold changes)
- Private health insurance statements (for MLS purposes, not the base levy)
Quick Checklist
- I understand the Medicare Levy is 2% of my taxable income
- I have checked whether I am below the low-income threshold
- My Medicare card / entitlement status is up to date with Services Australia
- I have an MES if I am claiming a medical exemption
- I have reported my spouse's income if using the family threshold
- I know private health insurance only affects the surcharge, not the base levy
- I have correctly declared my residency status for tax purposes
If your Medicare Levy situation is complex — for example, you have changed visa status during the year, hold a 482 visa with a Reciprocal Health Care Agreement country, or are unsure whether your family income triggers the surcharge — getting it wrong can result in an ATO debt notice. a registered tax agent (see the directory)
Not sure if you need professional help? See our full decision guide on when a tax agent makes sense for you.
*Disclaimer: This is general information only. Medicare Levy thresholds, rates, and exemption rules are subject to annual indexation and may change. Consult a registered tax agent for advice specific to your circumstances.*