How the Medicare Levy Surcharge Works & How to Avoid It

Published: January 18, 2019

As an Australian taxpayer, you generally need to pay a Medicare Levy of 2%, plus a Medicare Levy Surcharge if you do not have appropriate private health insurance.

The Medicare Levy Surcharge (MLS) is calculated at 1% to 1.5% of your income and usually needs to be paid in addition to the Medicare Levy of 2%. The percentage surcharge you pay depends on your income threshold as a single person or your combined income as a family, which includes single parents and couples (including de facto couples).

Read this article to find out how to calculate your Medicare Levy and MLS, whether you're exempt from paying it and how you can avoid it.

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What's the difference between Medicare levy and Medicare Levy Surcharge?

Generally, the Medicare Levy (2% of your taxable income) must be paid by all Australian residents receiving free health care (Medicare), unless you qualify for a reduction or exemption. Whereas the Medicare Levy Surcharge (MLS), which is between 1% to 1.5% of your taxable income, is usually only paid by people who do not have a hospital policy from a registered private health insurer.

What is the Medicare Levy?

The Medicare Levy is how Australians contribute toward the cost of Medicare, which is 2% of your taxable income if your taxable income is above a certain threshold and you are not exempt from paying. If your taxable income was equal to or less than $21, 980 for the last tax year you generally do not have to pay the levy, or you might qualify for a reduced rate if you earned between 21,980 and $27,069. Calculate your Medicare Levy using ATO’s calculator.

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Am I eligible for the Medicare Levy exemption?

According to the Australia Taxation Office (ATO), some foreign residents and low-income earners generally do not have to pay the whole or part of the Medicare Levy. If you meet specific medical requirements or live in Australia but do not qualify for Medicare benefits, you might also be exempt from paying this levy.

Medicare Levy emption criteria

  1. Foreign residents, or
  2. Not entitled to receive Medicare benefits, or
  3. Meet specific medical requirements

You might be wholly or partly exempt from the Medicare tax if you experienced one of the exemption categories for all or part of the year, while also meeting one of the circumstances in the right-hand column.

Exemption category Circumstance / Condition
You’re a blind pensioner. Have no dependents.
Receive a sickness allowance from Centrelink. All your dependents (incl. spouse) is in one of the exemption categories or paid the Medicare Levy.
At least one dependent is not in the exemption category and doesn’t have to pay the Medicare Levy.
Are entitled to full free medical treatment for all conditions under the Defence Force or Veterans’ Affairs Gold Health Card. Single parent or separated in a shared-care agreement and entitled to the Family Tax Benefit Part A with a child, not in the exemption category.
You have a spouse, that meets one of the left-hand categories, and a child that's dependent on both of you and is not in the exemption category.

Please visit the ATO website for specifics on whether or not you are exempt from paying the levy.

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What is the Medicare Levy Surcharge (MLS)?

The MLS is an extra health insurance tax you pay in addition to your Medicare Levy and depending on your income, your MLS rate might be 1%, 1.25% or 1.5%. Your taxable income includes:

  • Your personal exertion income which you earn by working,
  • Monies for which family trust distribution tax has been paid, and
  • Your total reported fringe benefits.

Who should pay the Medicare Levy Surcharge?

All Australian taxpayers without private hospital insurance earning over a certain amount of income typically need to pay the MLS. The levy surcharge is calculated on your family status and individual or combined income.

Medicare Levy Surcharge income threshold from 1 April 2018 to 31 March 2019

MLS Percentage to pay Income for singles Income for families
0% ≤ $90,000 ≤ $180,000
1.0% $90,001 to $105,000 $180,001 to $210,000
1.25% $105,001 to $140,000 $210,001 to $280,000
1.5% ≥ $140,001 ≥ $280,001

How to avoid paying the Medicare Levy Surcharge

  • You are exempt from paying the Medicare Levy (see above)
  • Have a taxable income below $90,000 for singles and $180,000 for couples/families
  • You have relevant private hospital insurance

How does health insurance help to avoid the Medicare Levy Surcharge?

You can avoid paying the MLS if you purchase a hospital policy from a registered private health insurance company in Australia. For a plan to be sufficient, the hospital policy excess, also known as co-payment, must be equal to or less than $500 for single policies and $1000 for a couple/family policy. Extras cover only will not exempt you from paying the surcharge.

If you decide to buy a hospital policy and are eligible for Medicare, you can generally claim a private health insurance rebate, which is the amount the government contributes toward the cost of your premiums. However, if your income is higher than $140,001 for singles and $280,001 for couples/families, then you generally won't be eligible to claim a rebate.

Private health insurance rebate 1 April 2018 to 31 March 2019

Base tier Tier 1 Tier 2
Singles: ≤ $90,000 Families: ≤ $180,000 Single: $90,001 to $105,000 Family: $180,001 to $210,000 Single: $105,001 to $140,000 Family: $210,001 to $280,000
  • Younger than 65: 25.415% rebate
  • 65 to 69 years old: 29.651% rebate
  • 70 years+: 33.887% rebate
  • Younger than 65: 16.943% rebate
  • 65 to 69 years old: 21.180% rebate
  • 70 years+: 25.415% rebate
  • Younger than 65: 8.741% rebate
  • 65 to 69 years old: 12.707% rebate
  • 70 years+: 16.943% rebate

Take note: Rebate percentages are adjusted on the 1st of April each year.

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