Medicare is Australia’s publicly funded national healthcare system. The federal government partially funds the system by charging taxpayers a levy on top of their annual income tax. Thanks to this levy, all Australians can enjoy access to quality health care.
How the Medicare Levy works and how you can save
ARTICLE
05 Oct 2023
4 min read
4 min read
Ever wondered why your tax bill was higher than you expected? It could be because of the Medicare Levy. So what does the levy pay for - and how is it calculated?
What is the Medicare Levy?
What does it cover?
Medicare provides access to a wide range of health care and hospital services, including:
- free or subsidised treatment when you visit a medical professional such as a doctor, optometrist or specialist
- free treatment and accommodation when you’re a public patient in a public hospital
- 75% of your treatment and procedure costs when you’re a private patient in a public or private hospital (not including accommodation fees and other costs), and
- reduced costs for prescription medications in some cases.
How much is it?
For most eligible taxpayers, the Medicare Levy is currently charged at 2% of their taxable income.
Also if you don’t have private hospital insurance, you may have to pay the Medicare Levy surcharge (MLS) depending on your income amount for MLS purposes. The MLS is 1 to 1.5%, depending on your family and personal income amounts.
When do you pay it?
If you’re required to pay the Medicare Levy, it’s automatically calculated against your taxable income when you lodge your yearly tax return.
You can use the Medicare Levy Calculator on the Australian Taxation Office (ATO) website to work out how much you can expect to pay.
If you receive regular income throughout the financial year that is subject to pay as you go (PAYG) withholding (for example salary or wages), an estimate of the income tax and Medicare Levy liability relating to that income is withheld and paid to the ATO throughout the year. This prepaid tax and Medicare Levy is then taken into account when working out your tax bill when you do your tax return.
Is anyone exempt?
If your taxable income is below a certain level, you don’t need to pay the Medicare Levy. Different thresholds apply for individuals, couples, sole parents, pensioners and seniors.
| 2022-23 | |
|---|---|
| Taxpayers entitled to seniors and pensioners tax offset | |
| Individual | $38,365 |
| Couple/sole parent (Family income) | $53,406 |
| All other taxpayers | |
| Individual | $24,276 |
| Couple/sole parent (Family income) | $40,939 |
You may also be exempt if:
- you suffer certain medical conditions
- you’re a foreign resident for tax purposes
- you’re not entitled to Medicare benefits – for instance, you’re an Australian citizen or permanent resident but have been residing overseas for more than certain timeframes.
Keep in mind that there are specific requirements for each category, so you may need to check whether you’re eligible for an exemption.
Can you get a reduction in your Levy payment?
There are instances when some people will only be charged a partial Medicare Levy. For instance, you’ll pay a reduced rate if your taxable income for the financial year was above the exemption threshold but less than a certain upper threshold.
To be eligible for a reduction, you also need to meet certain conditions.
What is the Medicare Levy Surcharge?
If you don’t have the appropriate level of private hospital insurance, you may be charged an extra amount on top of the 2% levy. This is the Medicare Levy Surcharge (MLS) and in the 2023-24 year only applies if your ‘income for surcharge purposes’ is over $93,000 for singles or $186,000 for families.
The MLS can range from an additional 1% to 1.5% depending on your income level. You can find a full breakdown of thresholds and rates on the ATO website.
What if you have private cover?
If you have an acceptable level of private hospital insurance, you won’t be charged the MLS. But first, you’ll need to provide information about your private health cover payments on your tax return.
For more information
Please note information in this article is correct at time of publication and is subject to change. Visit the Australian Tax Office website for the most up to date information.
If you’d like to know more about how the Medicare Levy might impact your financial situation, speak to your financial planner.
Talking to a financial planner can help you understand your situation and make confident financial decisions (big or small) so you can get the most out of life.
Disclaimer:
Copyright © 2023 AIA Financial Services Pty Limited (ABN 68 008 540 252, AFSL 231109), trading as AIA Financial Wellbeing. All rights reserved. This information is current at the date of this publication and is subject to change. This provides general information only, without taking into account factors like the objectives, financial situations, needs or personal circumstances of any individual and is not intended to be financial, legal, tax, health, medical, nutritional or other advice. Before acting on the information in this publication, individuals should consider its appropriateness having regard to such factors.
Copyright © 2023 AIA Financial Services Pty Limited (ABN 68 008 540 252, AFSL 231109), trading as AIA Financial Wellbeing. All rights reserved. This information is current at the date of this publication and is subject to change. This provides general information only, without taking into account factors like the objectives, financial situations, needs or personal circumstances of any individual and is not intended to be financial, legal, tax, health, medical, nutritional or other advice. Before acting on the information in this publication, individuals should consider its appropriateness having regard to such factors.
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