The Medicare levy is a flat 2% tax on your taxable income that helps fund Australia's public health system. Most working Australians pay it, and it's collected as part of your income tax — you'll usually see it as a separate line on your notice of assessment. This guide explains what it is, who pays it, the low-income thresholds where it phases in, the exemptions that can remove it, and how it's different from the Medicare levy surcharge that catches it out.
What the Medicare levy is
The Medicare levy is an additional 2% of your taxable income, paid on top of the income tax worked out from the ordinary tax brackets. It helps fund Medicare, the public scheme that gives Australian residents access to subsidised doctor visits, hospital treatment and prescription medicines.
It's charged on your taxable income — your assessable income after deductions — not your gross salary. Because it sits outside the tax brackets, the levy applies at the same flat 2% rate whether you earn $40,000 or $400,000. A person with a taxable income of $90,000, for example, pays a Medicare levy of $1,800 (2% of $90,000) in addition to their income tax.
Who pays the Medicare levy
If you're an Australian resident for tax purposes, you generally pay the 2% Medicare levy. It's withheld from your pay through the year along with your income tax, and squared up when you lodge your tax return. There's nothing extra to claim or apply for — the ATO works out the exact amount from the figures in your return.
You may pay a reduced levy, or none at all, if your income is low, and some people are fully exempt. Those situations are covered below.
The low-income thresholds
People on low incomes pay less than the full 2%, or nothing. Below a lower threshold you pay no levy; above an upper threshold you pay the full 2%; and in between, the levy phases in gradually rather than switching on all at once. These thresholds are lifted most years in line with inflation, so the exact figures move a little each financial year.
For the 2024–25 income year, the single-person thresholds set by the ATO were:
| Your situation | No levy up to | Full 2% levy from |
|---|---|---|
| Single, most taxpayers | $27,222 | $34,027 |
| Single, eligible for the seniors and pensioners tax offset | $43,020 | $53,775 |
Families have higher thresholds again. For 2024–25 the family income floor was $45,907, rising by $5,270 for each dependent child, so a couple with two children paid no levy until their combined family income passed a higher figure. Because these numbers are indexed each year, always check the current year's thresholds before relying on them.
How the reduction is worked out
Inside the phase-in band, the levy builds up at 10 cents for every dollar your income sits above the lower threshold, until it reaches the full 2%. That's why the band exists — it stops someone just over the floor from being hit with the whole levy at once.
Here's a worked example for a single person with no dependants in 2024–25, using the $27,222 lower threshold:
The ATO calculates the reduction for you automatically when you lodge — you don't need to do this maths yourself. The example just shows why someone earning a little over the threshold pays much less than the headline 2%.
Medicare levy exemptions
Some people don't pay the Medicare levy at all, regardless of income. You may qualify for a full or half exemption if you fall into one of the ATO's exemption categories:
- Medical exemption — you meet certain conditions, such as being a blind pensioner or entitled to full free medical treatment, and weren't entitled to Medicare benefits.
- Foreign residents — if you're a foreign resident for tax purposes, you're generally exempt.
- Not entitled to Medicare benefits — for example, some temporary residents, where you hold a Medicare entitlement statement from Services Australia confirming you couldn't access Medicare.
A half exemption can apply for days when part of your family had a Medicare entitlement and part didn't. Exemptions are claimed in the Medicare levy section of your tax return, and you need to be able to back them up with the relevant statement or evidence.
The Medicare levy vs the Medicare levy surcharge
These two sound almost identical, but they are separate charges and it's worth keeping them straight.
The Medicare levy is the 2% almost everyone pays. The Medicare levy surcharge (MLS) is an extra charge of 1% to 1.5% aimed only at higher earners who don't hold an appropriate level of private hospital cover. You can pay the 2% levy and never go near the surcharge; the surcharge is designed to nudge higher-income earners into taking out private health insurance, easing pressure on the public system.
If your income is above the surcharge thresholds and you don't have private hospital cover, you can end up paying both. Our Medicare levy surcharge guide covers exactly who it hits and how private cover avoids it.
The bottom line
The Medicare levy is a flat 2% of your taxable income that funds Medicare, paid by most Australian residents and collected alongside your income tax. Low-income earners pay a reduced amount or nothing at all, some people are exempt, and it's a completely separate thing from the income-tested Medicare levy surcharge. To see how the levy fits into your overall tax and take-home pay, run your numbers through the income tax calculator.