The Medicare levy explained: what it is and who pays
Looking at a tax return or an ATO summary, many new arrivals see a line called “Medicare levy” and do not understand what it is. It is a compulsory contribution to Medicare — Australia’s public health system.
What the Medicare levy is
The Medicare levy is an amount added to your income tax. It is not a separate tax — it is a charge on your taxable income, used to help fund Medicare (the public health system).
The exact Medicare levy rate is set by the ATO and can be adjusted — to find the current rate, check directly at ato.gov.au. This figure appears on your tax return each year.
Who pays
Most Australian tax residents pay the Medicare levy. However, some people are exempt or pay a reduced amount, including:
- People with income below the minimum threshold (the threshold changes each year — check the ATO)
- People not eligible to use Medicare (some temporary visa types)
- People with a Medicare levy exemption certificate from the ATO
If you hold a temporary visa and are not eligible for Medicare, you may be able to apply for a Medicare levy exemption — you need to lodge a specific form with the ATO.
What the Medicare Levy Surcharge is
On top of the basic Medicare levy, there is the Medicare Levy Surcharge (MLS) — an additional charge for people earning above a certain level who do not have private hospital cover.
The idea behind the MLS: to encourage people who can afford it to take out private cover, reducing pressure on the public health system.
The income levels at which the MLS applies, and the MLS rate, change with the rules — check at ato.gov.au for the current thresholds.
How it relates to private health insurance
Some people take out private health insurance partly for financial reasons — to avoid the MLS or to take advantage of “Lifetime Health Cover” (where premiums rise with age if you do not take out cover before a certain age, under government rules).
This is a personal decision worth weighing up. If you are considering whether to take out private health insurance, the moneysmart.gov.au site has a comparison tool and neutral guidance.
No Medicare does not mean no levy
A point many people get wrong: some visa holders are not eligible for Medicare but still have to pay the Medicare levy unless they are formally exempt. If you are not eligible for Medicare and have not applied for an exemption, you may be paying the levy without being able to use the service.
Check your status with the ATO and Services Australia soon after you arrive in Australia. The exemption process is usually straightforward — the important thing is to do it in time.