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Unpacking the Australian Medicare Levy: A Detailed Breakdown

Did you know that Australia has a publicly funded (and universal) health insurance scheme? This scheme is called Medicare which allows all Australians to access free or low-cost treatment. A small number of eligible international visitors can also avail this benefit.

However, in no way does it mean that health care is free. Australians pay for it as a regular deduction from employment incomes, which is called a Medicare levy. In this way, rather than paying when the treatment is needed, they pay it regularly.

Medicare levy in Australia

Before moving on to what the Medicare levy is and how it works, here’s what you should know about the Medicare system.

What does Medicare cover?

There are three parts to the Medicare system, namely hospital, medical and pharmaceutical.


Under Medicare, an individual can be treated at no charge in a public hospital as a public patient by a doctor appointed by the hospital. In case you are already privately insured, you can still choose to be treated as a public patient.


What if you decide to visit a doctor outside the hospital? In this case, Medicare will cover the complete scheduled fee if you go to a general practitioner. For a specialist, it will cover 85% of the scheduled fee.


Under the PBS or Pharmaceutical Benefits Scheme, you need to pay only part of the price of most prescription medicines that you purchase at pharmacies, while the rest of it will be covered by this scheme. To enjoy this benefit, you will have to present your Medicare card.

Will Medicare cover the ambulance costs?

While you might expect the ambulance costs to be covered by it, it is not the case. Every Australian state and territory has different ambulance regulations that you need to check.

Now that you know what Medicare is, let’s move on to the Medicare levy.

What is Medicare levy?

The majority of taxpayers in Australia pay 2% of their taxable income as a levy to fund Medicare services. Australia lets you visit the hospital in case you get sick and do not pay a cent for this visit, thanks to the levy you and other people pay.

Medicare levy

The levy is used to fund hospitals, nurses, doctors and a couple of other related costs that are associated with providing free healthcare.

The Medicare levy is an additional charge to the tax a person pays on the taxable income, and it is collected in the same way income tax is collected. You can find it on the Notice of Assessment or a tax refund estimate at EOFY (end of financial year).

Usually, the PAYG or pay-as-you-go amount that employers withhold from wages or salaries includes an amount that will cover the levy. Once the income tax return is lodged, the Australian Taxation Office (ATO) will calculate the actual amount you owe.

Who pays the Medicare levy?

Individuals whose earnings exceeded $24,276 in the most recent tax year have to pay the Medicare levy. It is 2% of your taxable income.

So, for instance, you earn $100,000 in a year. 2% of this amount, which is $2000, will be paid in Medicare levy. This amount is in addition to the regular income tax you pay as per your tax bracket.

How to avoid paying the Medicare levy?

Is there a way for you to avoid paying the Medicare levy? There are two conditions under which a person may be exempt from paying it.

Low-income earner

Depending upon the annual income of a person, you may either don’t have to pay the levy or get a reduction on the levy rate.

Low-income thresholds that allow one to avoid paying Medicare levy

Low-income thresholds

Here are the conditions under which you do not have to pay the Medicare levy:

  • Your income is less than or equal to $24,276. For somebody entitled to the seniors and pensioners tax offset, this amount is $38,365.
  • Your family income is less than or equal to $40,939. For those entitled to the seniors and pensioners tax offset, this amount is $53,406.

Medicare Levy reduction for singles

What if you earn a little more than $24,276? If your income is between $24,276 and $30,345, you qualify for a reduced rate to pay the Medicare levy.

For the people who are entitled to seniors and pensioners tax offset, the range becomes $38,365 to $47,956.

Medicare levy reduction for families

If your family income is above $40,939 and you meet one of the following criteria, you may qualify for a reduced rate:

  • You had a spouse (de facto or married).
  • Your spouse died during the year, and you did not have a spouse before the end of the year.
  • You had sole care of one dependent child or more dependent children.
  • You are entitled to an invalid carer tax offset for your child.

If your family income lies between $40,939 and $51,174, you qualify for the reduced rate of Medicare levy. Again, for those entitled to the seniors and pensioners tax offset, the range becomes $53,406 to $66,758.

For each dependent child, the family income threshold increases by $4,700, and the same goes for each student.

Medicare levy and Medicare levy exemptions

Medicare Entitlement Statement

Medicare Entitlement Statement is issued by the Department of Human Services to people who aren’t entitled to Medicare benefits because of their visa type. Those who fulfil any of the following conditions can apply for a statement:

  • You are a temporary visa holder who isn’t eligible for Medicare under a reciprocal health care agreement.
  • You are an Australian permanent resident who spent a year (12 months) or more living outside of the country.
  • You are a New Zealand citizen, and you have lived in Australia for less than 6 months within a 12-month period.
  • You are a temporary visa holder, and you haven’t applied for permanent residency.
  • You are an Australian citizen, but you have lived overseas for 5 years or more than that.

You have to complete “Medicare Levy Exemption” on the tax return if you have an entitlement statement. It will allow you to avoid the Medicare levy.

You will require this entitlement statement before filing your tax return. If not, you must pay the Medicare levy.

In case you wish to get professional knowledge about the Medicare levy, contact Clear Tax Accountants, a team of small business accountants in Melbourne.

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