Medicare Levy 2025-26 — Rate, Surcharge & Exemptions

What Is the Medicare Levy?

The Medicare levy is a 2% tax on assessable income that funds Medicare, Australia's universal public healthcare system.

Almost every Australian resident for tax purposes pays the Medicare levy. It covers bulk-billed doctor visits, public hospital treatment, and subsidised prescription medicines through the Pharmaceutical Benefits Scheme (PBS). The levy is calculated on your taxable income and collected through the PAYG withholding system, meaning your employer deducts it from each pay cycle alongside your income tax.

The Medicare levy applies in addition to income tax brackets. A taxpayer earning $100,000 pays income tax based on the standard marginal rates plus a separate 2% Medicare levy of $2,000. The levy does not replace any part of income tax. It is a flat-rate charge with no marginal tiers, unlike the progressive income tax system.

Three groups pay less than the standard rate: low-income earners below the reduction threshold, non-residents who are not entitled to Medicare benefits, and holders of specific Medicare exemption certificates. A separate "Medicare Levy Surcharge" applies to higher earners without private hospital cover.

How Much Is the Medicare Levy?

The Medicare levy is 2% of your taxable income for FY2025-26, with no upper cap.

The 2% rate has remained unchanged since 2014. It applies to your entire taxable income once you exceed the low-income threshold of $27,222. Unlike income tax, there are no escalating brackets — every dollar of taxable income attracts the same 2% charge. This makes the Medicare levy calculation straightforward: multiply your taxable income by 0.02. Use our take-home pay calculator to see the exact Medicare levy amount separated from your income tax.

The Medicare levy is calculated on taxable income, which equals gross income minus allowable deductions. Salary sacrifice arrangements that reduce taxable income also reduce the Medicare levy.

Who Is Exempt from the Medicare Levy?

Non-residents, certain visa holders, and members of foreign defence forces are fully exempt from the Medicare levy for the period they are not entitled to Medicare benefits.

Exemptions fall into four categories recognised by the ATO:

• Full-year non-residents — taxpayers who are not Australian residents for tax purposes for the entire financial year pay no Medicare levy, as they have no access to Medicare services
• Part-year residents — the levy applies only to income earned during the period of Australian residency; the low-income threshold is proportionally reduced
• Specific visa holders — temporary residents on visas that do not confer Medicare eligibility (such as subclass 457/482 holders from non-reciprocal countries) can apply for a "Medicare Levy Exemption Certificate" through Services Australia
• Foreign defence force members — personnel serving in a foreign military force who are not entitled to Medicare benefits

Citizens of countries with reciprocal healthcare agreements — the United Kingdom, New Zealand, Ireland, Sweden, the Netherlands, Finland, Italy, Belgium, Slovenia, and Norway — are entitled to Medicare and therefore pay the levy. You claim exemptions when lodging your tax return. See our non-resident tax guide for a full explanation of residency rules.

What Is the Medicare Levy Surcharge?

The "Medicare Levy Surcharge" (MLS) is an additional charge of 1% to 1.5% on top of the standard 2% Medicare levy, payable by higher-income earners who do not hold compliant private hospital cover.

The MLS uses "income for MLS purposes," which includes taxable income, reportable fringe benefits, total net investment loss (including negative gearing), and reportable super contributions. This broader income base means some taxpayers who appear below the threshold on taxable income alone still trigger the surcharge.

Family thresholds increase by $1,500 for each dependent child after the first. A family with 2 children has a Tier 1 threshold of $187,501 instead of $186,001. The surcharge is calculated on total income for MLS purposes, not just salary.

How Do You Avoid the Medicare Levy Surcharge?

Holding compliant private hospital cover for the full financial year eliminates the MLS entirely, regardless of income level.

The cover must meet three requirements to be MLS-compliant:

1. Hospital cover — extras-only policies do not satisfy the MLS requirement; the policy must include hospital treatment
2. Excess cap — the policy excess (also called the "front-end deductible") must be $750 or less for singles or $1,500 or less for couples and families
3. Full-year coverage — the policy must be held for the entire financial year, or for the full period you are an Australian resident; gaps of even a single day can trigger a pro-rata MLS charge

A basic hospital policy from a registered health fund typically costs $1,200 to $1,800 per year for singles. On a $150,000 salary, the MLS costs $1,875 per year — making private cover the cheaper option in most cases. Consider using a salary sacrifice calculator to explore pre-tax health insurance arrangements that further reduce your taxable income.

What Happens if You Have Cover for Only Part of the Year?

The ATO calculates the MLS on a daily basis. Holding cover for 300 out of 365 days means you pay the surcharge for the remaining 65 days. The calculation is: (days without cover / 365) x annual MLS amount. Starting or cancelling a policy mid-year triggers a pro-rata charge for the uncovered period.

What Is the Medicare Levy Reduction for Low-Income Earners?

Taxpayers earning below $27,222 pay no Medicare levy at all for FY2025-26, and a reduced levy applies up to $34,028.

The reduction phases in at 10 cents for every dollar of taxable income above the threshold. This means the levy gradually increases from $0 at $27,222 until it equals the standard 2% charge at $34,028. The formula is: Medicare levy = 10% x (taxable income - $27,222).

These thresholds are adjusted annually by the ATO. The family threshold increases by $4,213 for each dependent child or student after the first. The "Low Income Tax Offset" (LITO) is a separate concession — see our low-income tax offset guide for details on how LITO interacts with income tax.

How Much Medicare Levy Do You Pay on $85,000?

An employee earning $85,000 per year pays a Medicare levy of $1,700, which equals $32.69 per week.

Here is the full pay breakdown for an $85,000 salary in FY2025-26:

The $1,700 Medicare levy represents 2% of the $85,000 taxable income. Combined with income tax of $16,288, the total tax burden is $18,288 — an effective tax rate of 21.5%. The LITO does not apply at this income level because it phases out completely above $66,667. The employer pays an additional $10,200 in superannuation guarantee contributions on top. Use our Australian tax calculator to calculate your exact take-home pay at any salary.

How the Calculation Works Step by Step

1. Start with gross taxable income: $85,000
2. Check the low-income threshold: $85,000 exceeds $27,222, so the full levy applies
3. Multiply by the levy rate: $85,000 x 0.02 = $1,700
4. Check the MLS: $85,000 is below $93,001, so no surcharge applies
5. Total Medicare cost: $1,700 per year ($32.69 per week)

Medicare Levy vs Private Health Insurance — Which Costs More?

The standard 2% Medicare levy is not avoidable by holding private health insurance — everyone pays it. Private cover only eliminates the additional Medicare Levy Surcharge.

The financial comparison between paying the MLS and buying private hospital cover depends on your income tier. The table below compares the annual MLS cost against a typical basic hospital policy at each tier.

The crossover point is approximately $120,000. Below that income, the MLS costs less than a basic hospital policy. Above $120,000, buying private cover saves money and provides hospital benefits. At $200,000, the saving is approximately $1,600 per year plus access to private hospital treatment, shorter waiting lists, and choice of doctor.

Does Private Health Insurance Replace the Medicare Levy?

No. The standard 2% Medicare levy applies to all Australian residents regardless of private health insurance status. Private cover only removes the additional MLS (1% to 1.5%). On a $150,000 salary, you pay the $3,000 Medicare levy either way. The difference is whether you also pay the $2,250 surcharge or a ~$1,400 hospital policy instead.

How Does the Medicare Levy Appear on Your Payslip?

The Medicare levy is bundled into your PAYG withholding — it does not appear as a separate line item on most payslips.

Your employer uses the ATO's PAYG withholding tax tables, which already incorporate the 2% Medicare levy into the total "tax withheld" amount. The figure shown as "tax" on your payslip includes both income tax and the Medicare levy combined. For example, on an $80,000 salary, approximately $1,600 of your total PAYG withholding is the Medicare levy ($30.77 per week).

The MLS is handled differently. If you do not have private hospital cover and your income exceeds $93,000, the ATO calculates the surcharge at tax return time. Your employer does not withhold the MLS during the year unless you specifically request an upward variation to your PAYG withholding. See our payslip guide for a full explanation of each line item.

Can You Get a Medicare Levy Refund?

Yes. If your employer withheld the Medicare levy throughout the year but you are entitled to a reduction (low income) or exemption (non-resident or specific visa), the ATO refunds the excess when you lodge your tax return. The refund appears as part of your overall tax refund or reduced tax debt. Use our tax return calculator to estimate your refund amount.

What Changed for the Medicare Levy in FY2025-26?

The Medicare levy rate remains at 2% for FY2025-26. The low-income thresholds increased to reflect CPI indexation.

Key changes for the 2025-26 financial year:

• Singles low-income threshold increased to $27,222 (from $26,000 in FY2024-25)
• Family threshold increased to $45,924 (from $43,846 in FY2024-25), plus $4,213 per dependent child
• Seniors and pensioners threshold increased to $43,020 (from $41,089 in FY2024-25)
• MLS income tiers remain unchanged — Tier 1 starts at $93,001
• Stage 3 tax cuts from 1 July 2024 reduced income tax but did not change the Medicare levy rate; the combined effective tax rate is lower for incomes between $45,001 and $200,000

The threshold increases mean approximately 80,000 additional low-income taxpayers pay no Medicare levy or a reduced levy compared to the prior year. The standard 2% rate has not changed since 1 July 2014 and no legislation is currently before Parliament to alter it. See our tax brackets guide for the full FY2025-26 income tax rate schedule.

Medicare Levy Rate History

Related Resources

The Medicare levy interacts with several other Australian tax and payroll obligations. These calculators and guides provide detailed breakdowns of each component.

• Income Tax Calculator — calculate your income tax separately from the Medicare levy using current FY2025-26 brackets
• Take-Home Pay Calculator — see your after-tax income with Medicare levy, HECS-HELP, and super broken out as separate line items
• Tax Brackets Guide — full FY2025-26 marginal tax rate table including effective rates at each income level
• Superannuation Guide — understand the 12% SG rate, concessional caps, and how super interacts with your take-home pay
• Salary Sacrifice Guide — reduce your taxable income and Medicare levy through pre-tax salary packaging arrangements
• HECS-HELP Guide — repayment thresholds and how HECS interacts with Medicare levy and income tax withholding

Frequently Asked Questions