How the Australian Medicare Levy Is Calculated
The Medicare levy is a 2% charge on taxable income that helps fund Australia's public Medicare health system. Most Australian tax residents pay it automatically through PAYG withholding, but lower-income earners benefit from a reduction, and higher-income earners without private hospital cover may face an additional Medicare Levy Surcharge (MLS).
📋 2025/2026 Medicare Levy Low-Income Thresholds
| Category | Lower Threshold (no levy) | Upper Threshold (full 2%) |
|---|---|---|
| Single | $28,011 | $35,013 |
| Family | $47,238 | $59,048 |
| Senior / Pensioner Single (SAPTO) | $44,268 | $55,335 |
| Senior / Pensioner Family (SAPTO) | $61,623 | $77,028 |
| Each dependent child adds $4,338 to the lower threshold and $5,423 to the upper threshold. | ||
📋 2025/2026 Medicare Levy Surcharge (MLS) Thresholds & Rates
| Tier | Single Income | Family Income | MLS Rate |
|---|---|---|---|
| Base Tier | $0 – $101,000 | $0 – $202,000 | 0% (no surcharge) |
| Tier 1 | $101,001 – $118,000 | $202,001 – $236,000 | 1.00% |
| Tier 2 | $118,001 – $158,000 | $236,001 – $316,000 | 1.25% |
| Tier 3 | $158,001+ | $316,001+ | 1.50% |
Family MLS thresholds increase by $1,500 for each dependent child after the first.
🔑 Key Medicare Levy Terms Explained
Shade-In / Phase-In Range: Between the lower and upper thresholds, you pay 10 cents for every dollar of taxable income above the lower threshold, instead of the full 2%. This avoids a sudden jump from $0 levy to a large bill at one cut-off point.
Low-Income Reduction vs Exemption: The low-income reduction is calculated automatically based on income. A full exemption is different — it applies regardless of income to foreign residents for tax purposes, holders of a Medicare Levy Exemption Certificate, or certain visa holders not entitled to Medicare benefits.
SAPTO (Seniors and Pensioners Tax Offset): Eligible seniors and pensioners get higher Medicare levy thresholds, meaning more retirement income is shielded from the levy before it starts phasing in.
Medicare Levy Surcharge (MLS): A separate, additional charge — not a higher levy rate — that applies to your entire taxable income (not just the amount above the threshold) if you earn above the MLS threshold and don't hold appropriate private hospital cover for the full year.
💡 Example 1: $31,000 Single Income (Shade-In Zone)
1. Taxable Income: $31,000
2. Lower Threshold: $28,011 (income is above this, so levy applies)
3. Income Above Lower Threshold: $31,000 − $28,011 = $2,989
4. Shade-In Levy: $2,989 × 10% = $298.90
5. Compare to Full 2% Levy: $31,000 × 2% = $620.00
Because $31,000 falls in the shade-in zone (below the $35,013 upper threshold), the reduced levy of $298.90 applies instead of the full $620.00.
💡 Example 2: $130,000 Single, No Private Hospital Cover
1. Taxable Income: $130,000 (well above $35,013, so full 2% levy applies)
2. Medicare Levy: $130,000 × 2% = $2,600.00
3. Income falls in Tier 2 ($118,001–$158,000) since no private hospital cover is held
4. MLS Surcharge: $130,000 × 1.25% = $1,625.00
5. Total Medicare Cost: $4,225.00
Holding appropriate private hospital cover for the full year would have avoided the $1,625 surcharge entirely, leaving only the $2,600 standard levy.
⚠️ Important Notes
— The Medicare levy and the Medicare Levy Surcharge are completely separate — you can pay one, both, or neither depending on your income and cover.
— MLS is based on income for MLS purposes, which can include reportable fringe benefits and other amounts beyond your basic taxable income.
— Foreign residents for tax purposes generally don't pay the Medicare levy, since they're not entitled to Medicare benefits.
— Thresholds shown here reflect the 2.9% uplift to the low-income thresholds announced in the 2026–27 Federal Budget, applied retroactively to 1 July 2025.
— For an official assessment, use the ATO Medicare Levy guidance.