Understanding The Medicare Levy On Your Return

Posted on 12 April '23 by , under tax.

The Medicare levy is an amount you pay in addition to the tax you pay on your taxable income.

The Medicare levy is used to help fund some of the costs of Australia’s public health system (Medicare).

Generally, the pay-as-you-go amount your employer withholds from your salary or wages includes an amount to cover the Medicare levy. This is usually calculated at 2% of your taxable income.

Why Would I Also Have To Pay The Medicare Levy Surcharge? 

If you have to pay the Medicare levy, you may have to pay the Medicare levy surcharge (MLS) if both:

  • you, your spouse and your dependent children do not have an appropriate level of private patient hospital cover
  • you earn above a certain income.

The MLS is an amount you pay on top of the Medicare levy.

If you want to avoid paying for the Medicare levy surcharge in the future, you can take out the appropriate level of private patient hospital cover for yourself, your spouse and all your dependents.

Medicare Levy Reductions

The amount of Medicare levy you pay is reduced if your taxable income is below a certain threshold. In some cases, you may not have to pay the levy at all.

For example, in 2021–22, you do not have to pay the Medicare levy if your taxable income is equal to or less than $23,365 ($36,925 for seniors and pensioners entitled to the seniors and pensioners tax offset (SAPTO)).

The 2022-23 threshold is yet to be released, but the ATO will work out the reduction for you when your tax return is lodged.

You may qualify for a Medicare levy reduction based on your family’s taxable income if both:

  • your taxable income was more than $29,206 ($46,156 for seniors and pensioners entitled to the seniors and pensioners tax offset (SAPTO)) in 2021–22
  • you either
    • had a spouse (married or de facto)
    • had a spouse that died during the year, and you did not have another spouse before the end of the year
    • are entitled to an invalid and invalid carer tax offset in respect of your child
    • had sole care of one or more dependent children.

If you have a spouse, you may not get SAPTO even if you meet all the eligibility conditions.

This is because the tax offset amount is based on your individual rebate income, not your combined rebate income. Even if you are eligible for SAPTO but do not get the offset, it doesn’t entitle you to a Medicare levy reduction.

Again, the ATO will work out the reduction that you may be eligible for (if you are eligible).

Medicare Levy Exemptions

You may claim an exemption for the Medicare levy if you fall under one of the following categories and meet their eligibility conditions.

  • Medical Exemption
  • Foreign Residents Medical Levy Exemption
  • Dependents For Medicare Levy Exemption
  • Not Entitled To The Benefits

If you are unsure whether you may be eligible for an exemption, you can start a discussion with us. We’re here to help.