All of us, at some point in our lives, may need to rely on the services provided by our public health system, Medicare. To fund this service, and ensure that all Australians have access to quality healthcare regardless of where they live or how much they earn, the majority of income tax payers will also make an additional contribution to the Australian Taxation Office (ATO) known as the Medicare Levy.
In this article:
What is the Medicare Levy?
In order to fund Medicare, our public health system, the Australian Government deducts a tax from your income that is known as the Medicare Levy. According to the ATO, for most taxpayers the levy is currently 2% of your taxable income, and is in addition to the income tax you also pay. Depending on your personal circumstances, you may get an exemption or a reduction to this rate, which you can apply for separately with the ATO.
How much is the Medicare Levy?
For the 2019–20 financial year, if you earned over $28,501 you would have paid a Medicare levy of 2% of your taxable income. For a single person earning $28,501 with no dependents, this would have equated to $570. The ATO has a calculator you can use to work out how much your Medicare levy would be based on your personal circumstances. Keep in mind that the ATO says there are some reasons this calculator may not be applicable, such as if you’ve received exempt foreign employment income or had a spouse and they were eligible for the seniors and pensioners tax offset (SAPTO), or got a super lump sum during the year but paid not tax on some or all of it.
What is the Medicare Levy threshold?
The Medicare levy lower threshold for the 2019-20 financial year is set at $22,801 ($36,056 for seniors and pensioners) advice from the ATO states. This means if you earn equal to or less than this amount you won’t pay any Medicare Levy. Anyone earning above $22,801 but less than $28,501 ($45,069 for seniors and pensioners) will pay a reduced amount known as a Medicare levy reduction, that’s calculated by the ATO.
Who pays the Medicare Levy?
Almost every Australian taxpayer who earns above the lower threshold will pay the Medicare Levy (in full or at a reduced rate); however, there are a few exemption categories that may apply. The ATO advises if at any point during the financial year you met certain medical requirements, were a foreign resident for tax purposes and/or were not entitled to Medicare benefits, then you could be exempt from the levy. If you have any dependents, you’ll need to consider both their circumstances and your own in deciding if you may get an exemption, says the ATO. If you qualify for an exemption you can claim this through your tax return. You will also need to apply for a Medicare Entitlement Statement from Services Australia. The Medicare Entitlement Statement tells you the period during a financial year that you weren’t eligible for Medicare.
What is the Medicare Levy Surcharge?
You are likely to pay the Medicare Levy Surcharge (MLS) if you don’t have a certain level of private patient hospital cover and earn above $90,000 if you’re single or $180,000 as a family. This is a percentage of your income that will be payable to the ATO when you lodge your tax return. The MLS was introduced to help ease the burden on the Medicare system by encouraging Australians on higher incomes to take out private health insurance. As the government’s PrivateHealth website explains, the MLS is different to the Medicare Levy, which applies to almost all Australian taxpayers, and is in addition to this.
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