Every year, millions of Australians pay the Medicare Levy without really understanding what it is, who pays it, or whether they can reduce or avoid it. If you've noticed a 2% deduction on your payslip or tax return and wondered what it's for — this guide is for you.
What Is the Medicare Levy?
The Medicare Levy is a charge applied to your taxable income to help fund Australia's public health system. For most Australians, it is set at 2% of your taxable income for 2025–26.
| Salary | Medicare Levy (2%) |
|---|---|
| $70,000 | $1,400/year |
| $100,000 | $2,000/year |
| $130,000 | $2,600/year |
Who Has to Pay the Medicare Levy?
Most Australian residents who lodge a tax return pay the full 2% levy. However, there are exceptions.
You may be exempt if:
- You are a foreign resident for tax purposes
- You hold a visa that doesn't grant access to Medicare
- Your income is below the low-income threshold
Low-income thresholds for 2025–26:
| Category | Threshold |
|---|---|
| Individuals | Below ~$26,000 |
| Families | Below ~$43,800 (+ ~$4,000 per dependent child) |
| Seniors and pensioners | Higher thresholds apply |
What Is the Medicare Levy Surcharge?
The Medicare Levy Surcharge (MLS) is an additional charge on top of the standard 2% — and only applies if you earn above $93,000 as a single and do not hold an approved private hospital health insurance policy.
| Income | Surcharge Rate |
|---|---|
| $93,001 – $108,000 | 1.0% |
| $108,001 – $144,000 | 1.25% |
| $144,001 and above | 1.5% |
For many higher earners, taking out basic private hospital cover (from ~$1,200–$1,800/year) actually saves money compared to paying the surcharge.
How Is It Collected?
For employees, the Medicare Levy is withheld from your pay throughout the year as part of your PAYG withholding — the same process that collects income tax. When you lodge your annual tax return, the ATO reconciles the amount withheld against your actual income. If too much was withheld, you get a refund. If too little, you pay the difference.
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- The Medicare Levy is 2% of your taxable income, paid by most Australian residents
- Low-income earners may be exempt or pay a reduced amount
- High-income earners without private hospital cover pay an additional surcharge of 1–1.5%
- The levy is withheld from your pay and reconciled at tax time
- Private hospital cover can save high earners money by avoiding the surcharge