Medicare Levy & Medicare Levy Surcharge Explained

Medicare provides Australian residents with affordable, accessible and high quality health care. To help fund such scheme, most taxpayers pay a Medicare levy of 1.5% of their taxable income. However you might be eligible for Medicare levy reduction or Medicare levy exemption. If your income is above a certain threshold - Medicare levy surcharge may apply.

Medicare Levy Reduction

Medicare levy is reduced for people on low incomes. For 2011-12, if your income is below a certain threshold:

  • you don't have to pay the levy at all if your taxable income is $18,839 or less;
  • your levy is reduced if your taxable income is $22,163 or less (Medicare Levy is payable at 10% of the excess above the lower threshold)

The thresholds are higher for seniors. If your income is above the thresholds, you may still qualify for a reduction based on your family taxable income.

Medicare Levy Exemption

You may be exempt from paying the Medicare levy:

  • if you're a foreign resident,
  • a resident of Norfolk Island,
  • not entitled to Medicare benefits, or
  • you meet certain medical requirements.

If you meet one of these conditions you can claim an exemption from paying the levy. To claim the exemption on your tax return, you must apply for a Medicare Levy Exemption Certificate.

Medicare Levy Surcharge

You have to pay the Medicare levy surcharge (MLS) if your income is above a certain threshold and you (or any of your dependants) don't have appropriate private patient hospital cover.

The surcharge is calculated at the rate of 1% of taxable income, your reportable fringe benefits and any amount on which family trust distribution tax has been paid. It is in addition to the Medicare Levy of 1.5%, which is paid by most Australian taxpayers.

In 2011-12, the surcharge may apply if your income for MLS purposes is more than:

  • $80,000 for a single person with no dependants; or
  • $160,000 for a couple with no children or one dependent child, plus $1,500 for each additional dependent child; and
  • you do not have an approved hospital cover with a registered health fund.

To be exempt from the surcharge, your hospital cover must be held with a registered health fund and cover some or all of the fees and charges for a stay in hospital. The following covers will not provide an exemption:

  • General treatment cover without hospital cover;
  • Overseas visitors cover;
  • Overseas student health cover; or
  • Cover held with an international insurer.

Our Tax Calculator includes standard Medicare levy, however does not include Medicare levy surcharge if any.