Medicare levy
A 2% charge on your taxable income that helps fund Australia's public health system.
Most Australian residents pay a Medicare levy of 2% of taxable income on top of their income tax. It is collected through the same PAYG withholding, so it usually appears bundled into the tax line on your payslip.
Low income earners pay a reduced levy or none at all, with the relief phasing in gradually rather than switching off at a single point.
Separately, the Medicare Levy Surcharge is an additional 1% to 1.5% charged to higher earners who do not hold an appropriate level of private hospital cover. It is designed to push people towards private insurance, and for many the surcharge costs more than a basic policy would.
The levy on an $85,000 salary
The 2% Medicare levy adds about $1,700 to your annual tax bill — separate from, and on top of, the income tax calculated from the brackets.
The bit people get wrong
The Medicare levy and the Medicare Levy Surcharge are two different charges. Everyone above the low income thresholds pays the levy; only higher earners without private hospital cover pay the surcharge as well.
Common questions
How much is the Medicare levy?
It is 2% of your taxable income for most residents, with reductions or a full exemption for low income earners and certain other categories.
How do I avoid the Medicare Levy Surcharge?
Hold an appropriate level of private hospital cover for the full year, or keep your income for surcharge purposes below the relevant threshold. Extras-only policies do not count.
Is the Medicare levy included in my tax bracket rate?
No, it is charged separately and calculated on your taxable income, then added to the income tax worked out from the brackets. This is why the tax withheld from your pay is higher than the bracket rate alone would suggest, and why your combined marginal rate is usually quoted as two percentage points above the bracket you sit in.
Run your own numbers
Related terms
Source: Australian Taxation Office