Putting members’ health before profit

Medicare Levy Explained: What It Is, Surcharge, and Exemptions

Australia, as a nation, can offer a very high standard of living across the board. It outperforms many of its fellow OECD countries economically, environmentally, and in terms of citizens’ life satisfaction. Australians can generally expect to enjoy long and happy lives, thanks to the robust and sophisticated health service available to everyone living and working down under.

medicare levy doctors laptop


Medicare, the country’s publicly-funded universal healthcare scheme, gives Australian residents access to a generally affordable, efficient, and high-quality medical system. To support this, Australians are required to pay a ‘Medicare levy’, a surcharge of 2% that’s taken out of a person’s taxable income.

The Medicare levy is essential in funding Australia’s public health system in providing patients with hospital treatment, outpatient appointments, and pharmaceutical services that Medicare mostly or entirely covers in most cases.

In this article, we’ll be explaining the Medicare levy in detail. We’ll discuss how it works, who needs to pay it, and who is eligible for exemptions. Finally, we’ll look at the Medicare levy surcharge and how it differs from the Medicare levy itself.

What is the Medicare Levy?

As previously stated, the Medicare levy is an income tax surcharge of 2% that helps cover much of the free treatment that is available under Australia’s universal healthcare system.

Since it was first introduced, the flat rate the levy charge has increased from 1.5% to 2%, keeping with broader inflation and population growth. 

It allows not only Australian citizens to access the country’s healthcare system, but also permanent residents from countries across the globe and people originally from nations with reciprocal agreements with Australia that allow access to emergency treatment, including the UK, New Zealand, and several EU member states.

How Does the Medicare Levy Work?

While the system it supports may be complex, paying the levy is generally straightforward. It’s automatically taken out of your taxable income, similar to the income tax you already pay either monthly or every financial year. If you’re taxed on a pay-as-you-go basis, your employer will withhold 2% of your monthly paycheque under the scheme.

Australian taxpayers who are self-employed are responsible for making sure that they pay their own Medicare levy each year. If you are self-employed, the Australian Tax Office (ATO) will calculate your tax bill based on your income tax return, which will usually include the levy of 2%.

Who is Eligible for a Medicare Levy Exemption?

As of 2023, Australian taxpayers earning $30,345 per year will be expected to pay the levy unless they are exempt or eligible for a reduction.

Individuals may be exempt from the Medicare Levy if:

1. Your income is below the lower Medicare Levy threshold. 

If your wages fall below a certain income annually, or you and your partner’s combined taxable income, if applicable, is below the threshold listed on the Government’s website, you may be exempt.

2. You’re not an Australian taxpayer for the given tax year.

If you’re considered a foreign resident for tax purposes during any part of a given tax year, such as if you live overseas for a complete tax year, then you can be granted an exemption for that entire period. If you’re out of the country for any length of time, you can apply for a partial exemption.

3. You have one of the listed medical conditions.

Medicare levy exemptions can also be granted to Australian residents with particular medical conditions or who meet specific criteria. If you’ve been given a Veterans’ Affairs Repatriation Health Card, the Australian Defence Force provides your health care, are granted Centrelink sickness allowance, or are a pensioner with impaired vision, you may also be exempt from paying the levy.

4. You’re not eligible for Medicare

If you’re not eligible for the services provided by Medicare, then you’re also exempt from paying the levy fee. This generally applies to people living or working in Australia temporarily such as diplomats or anyone living and working in the country on a shorter-term visa.

It’s worth pointing out that you still need to pay the levy if you have private health insurance policies, provided that you meet the minimum income threshold.

How Can I Claim an Exemption?

Simply being eligible for exemption from the Medicare levy doesn’t always mean you’ll automatically be granted one by the ATO. On the contrary, if you believe you should be exempt from paying the levy, you’ll generally need to contact the Department of Human Services to request a Medicare Entitlement Statement (MES) document.

Your Medicare Entitlement Statement shows that you aren’t eligible for Medicare services or that you should otherwise be exempt from paying the levy. Be aware that filling out the MES can be pretty involved, and you may need to provide documentary evidence of your circumstances, depending on why you’re applying for an exemption. Any documentation you use will also need to be certified.

Once you’ve received your MES, you can claim an exemption from paying the Medicare levy. You can do so on your tax return when you file it. There are various categories for the different conditions and circumstances that might result in you not being liable to pay the Medicare levy for that tax year.

Be aware that you’ll generally need to apply for a new MES for each tax year, exempting you from paying the Medicare levy.

Can I Claim a Medicare Levy Exemption for Previous Years?

If you believe that you may  have accidentally paid the Medicare levy in a given income year (or multiple) when you shouldn’t have, you may be able to claim an exemption for a previous year or years, provided that you can obtain an MES and amend your tax return for the period in question.

Tax returns in Australia can generally be amended up to two years after they’ve been filed. This means you’re limited to claiming levy exemptions that fall within two years from the date you have in mind. If you can provide an MES and revise your tax return to demonstrate that you are exempt from paying the Medicare levy, the ATO should refund you that amount.

Who is Eligible for a Medicare Levy Reduction?

If you’re not exempt, but have unique circumstance, you may be eligible for a reduction. This includes if:

1. Your income is higher than the lower Medicare Levy threshold, but lower than the higher.

There are certain income thresholds where a Medicare levy reduction is typically granted. The exact reduction is based on a variety of factors rather than being standardised.

If your income is higher than the lower threshold but lower than the upper threshold, you’ll still be required to cover the Medicare levy at a reduced rate of less than 2% of your income.

2. You’re a single parent or carer of a dependent.

If your income exceeds the upper threshold, but youcare solely for a dependent child or multiple dependent children, you may be able to pay a reduced levy charge. 

3. Your spouse has passed away the same financial year.

You may qualify for a reduction if your spouse passes away during the relevant financial year, provided that you do not have another spouse by the 30th of June in that same year.


If in doubt of whether you’re eligible for a reduction, you can use the ATO’s Medicare levy calculator to determine precisely how much you can expect to pay as part of the scheme.

What is the Medicare Levy Surcharge, and Who Has to Pay It?

In addition to the standard Medicare levy, some taxpayers are liable to pay an additional Medicare Levy Surcharge, or MLS, of 1-1.5%, depending on their individual or family income.

There are two primary differences between the Medicare levy and the Medicare levy surcharge; first, the threshold for paying the MLS is significantly higher than for the standard Medicare levy. As a scheme targeted primarily at higher-income earners, only individuals taking home salaries above $93,000 yearly will be expected to cover the Medicare levy surcharge.

For couples, the income threshold is $186,000; it’s the same for families, though an additional $1,500 is added for every dependent child in the household. The Medicare levy surcharge for dependent children is usually 21 and below; however, full-time students aged between 21-24 are also considered dependents under the scheme.

The second difference between the MLS and the standard Medicare levy is how the ATO calculates one’s income. Rather than relying on taxable income alone, whether or not you’re expected to cover the levy surcharge also depends on your reportable fringe benefits, super contributions, net investment losses, and your spouse’s income if you are married.

How Do I Avoid Paying the Surcharge?

High-income individuals and families can avoid the MLS by taking out private hospital cover (an ‘extras’ policy alone is insufficient). Include the details of your cover on your tax return, and the ATO will exempt you from the MLS.

General cover and travel insurance are insufficient here; the Australian Taxation Office will want to see that your plan offers an ‘appropriate level of private patient hospital cover.’ The ATO website states that, for a given level of private cover to be accepted, a single person should be entitled to an excess of $750 or less. The excess should extend to $1,500 or less for families and couples.

In this way, the Medicare levy surcharge minimises the pressure on public hospitals by encouraging individuals with higher incomes to take out private hospital cover. However, it’s worth noting that holding private health insurance doesn’t preclude you from seeking treatment at a public hospital, should you wish to.

Who is Exempt From Paying the Surcharge?

  • Individuals with an income above $93,000 and an appropriate level of private health insurance hospital cover;
  • Families with an income above $186,000 (based on the number of dependent children) and an appropriate level of private patient hospital cover;
  • Couples with an income above $186,000 and an appropriate level of private patient hospital cover.

Hopefully, you should now understand what the Medicare levy is and whether you’re eligible for an exemption or reduction. As your life circumstances change, we recommend revisiting this guide as you may become eligible in the future. 


If you want to avoid paying the Medicare levy surcharge by investing in a not-for-profit or members’ owned health insurance policy, we have the right members’ fund for you.