Medicare Levy in Australia: Complete Guide to Medicare Tax Levy (2025–26)

Most Australians pay the Medicare Levy every year without fully understanding what it is, how it is calculated, or whether they are paying the right amount. If you earn above the low-income threshold, 2% of your taxable income goes straight to funding Australia's public health system, and getting this wrong on your return costs you money. This guide explains exactly how the Medicare Levy works for the 2025–26 financial year, who pays it, who is exempt, and what most people miss.

What is a "Medicare Levy Surcharge"?

The Medicare levy is a tax most Australian residents pay on top of their regular income tax. It directly funds Medicare Australia’s universal public healthcare system, which gives all Australians access to subsidised doctor visits, public hospital treatment, and lower-cost prescription medicines through the Pharmaceutical Benefits Scheme (PBS).

For the 2025–26 financial year, the standard Medicare levy rate is 2% of your taxable income. This percentage is calculated on your entire taxable income once you exceed the relevant income threshold, not just the income above the threshold.

The levy is collected automatically through the PAYG withholding system from your wages or calculated when you lodge your annual tax return with the Australian Taxation Office (ATO).

Key fact: The Medicare levy is separate from the Medicare levy surcharge (MLS). The levy applies to most taxpayers at a flat rate of 2%, while the surcharge is an additional 1%–1.5% that applies only to higher-income earners without private hospital cover.

How Much Is the Medicare Levy?

For the 2025–26 income year, the Medicare levy is 2% of your taxable income if you earn above the low-income threshold. Here is what that looks like at different income levels:

Medicare Levy Threshold for 2025–26

The Medicare levy threshold determines whether you pay the full levy, a reduced levy, or nothing at all. The ATO updates these thresholds periodically.

Singles

Families

• 
  Family threshold (2025–26): $43,846
• 
  Additional per dependent child: $4,027

Both your income and your spouse’s income are taken into account. If the combined family income falls below the family threshold, the levy may be reduced for one or both partners.

What Is the Medicare Levy Surcharge (MLS)?

The Medicare Levy Surcharge is an additional tax on top of the standard 2% Medicare levy that applies to higher-income earners who do not hold appropriate private hospital cover for the full financial year.

The surcharge was introduced to encourage higher-income Australians to take out private health insurance, easing pressure on the public hospital system. It is calculated as a percentage of your income for MLS purposes, which includes taxable income, reportable fringe benefits, total net investment losses, and reportable super contributions.

The surcharge ranges from 1% to 1.5% depending on your income tier. It is assessed when you lodge your tax return.

Medicare Surcharge Threshold and Rates for 2025–26

The MLS thresholds were updated for the 2025–26 income year. Here are the current rates according to the ATO:

Individuals

Families

MLS Example Calculation

How to Avoid Paying the Medicare Levy Surcharge

The MLS often costs more than a basic private hospital insurance policy. Here are legitimate ways to avoid or minimise it:

1. Take Out Private Hospital Cover

• 
  The policy must cover hospital treatment (not just extras like dental or optical).
• 
  The excess must be $750 or less for singles, or $1,500 or less for couples and families.
• 
  The cover must be with a registered Australian health insurer.

Travel insurance and overseas health cover do not qualify for MLS purposes.

2. Stay Below the Income Threshold

3. Reduce Your Income for MLS Purposes

4. Exemptions for Specific Groups

• 
  Individuals under 18 with no dependants (income is not assessed for surcharge purposes).
• 
  People who are exempt from the Medicare levy entirely (such as certain temporary residents who are not entitled to Medicare benefits).

Medicare Levy Exemptions

Not everyone is required to pay the Medicare levy. You may be fully or partially exempt in the following situations:

Full Exemptions

• 
  Foreign residents who were not entitled to Medicare benefits for the entire financial year.
• 
  Certain temporary visa holders are not covered by a Reciprocal Health Care Agreement with Australia.
• 
  Members of the Australian Defence Force, who receive healthcare through Defence-provided services.
• 
  Diplomats and members of consular posts in Australia who meet specific conditions.

Partial Exemptions

How to Claim an Exemption

What Is a Medicare Entitlement Statement (MES)?

A Medicare Entitlement Statement is an official document issued by Services Australia that confirms the period during a financial year when you were not eligible for Medicare benefits. It is primarily used by temporary visa holders, international students, and Australian citizens living overseas who need to claim a Medicare levy exemption on their tax return.

Who Needs an MES?

• 
  A temporary visa holder who had not applied for permanent residence.
• 
  A temporary visa holder not eligible under a Reciprocal Health Care Agreement.
• 
  An Australian permanent resident who lived outside Australia for 12 months or more.
• 
  A New Zealand citizen who spent less than 6 months in Australia within a 12-month period.
• 
  An Australian citizen living overseas for 5 years or more.

How to Apply for an MES

• 
  Online via myGov: Link the Individual Healthcare Identifier (IHI) service to your myGov account and use the MES dashboard.
• 
  Paper form (MS015): Download and complete the Application for a Medicare Entitlement Statement form from the Services Australia website.

Applications must be lodged from 1 July each year for the previous financial year. You must obtain a new MES for each year you claim the exemption.

Important: Having an MES does not automatically exempt you from the Medicare levy. The ATO makes the final determination. Additionally, if you have a spouse who was entitled to Medicare benefits during the same period, you may not be eligible for the exemption even if you personally hold an MES.

Medicare Levy vs Medicare Levy Surcharge

Many Australians confuse these two charges. Here is a clear comparison:

Historical MLS Threshold Changes

The MLS thresholds have been progressively increased in recent years: