How the Medicare Levy Is Calculated
The Medicare levy funds Medicare — bulk-billed doctor visits, public hospital treatment and PBS medicines. It is charged on your taxable income, which is gross income less allowable deductions, and it sits on top of income tax rather than replacing any part of it.
The part most calculators get wrong: the levy is not a flat 2% from the first dollar. There are three bands, and the middle one — the shade-in — catches roughly every part-time and low-income earner in the country.
- At or under $28,011 — no levy at all.
- Between $28,011 and $35,013 — you pay 10% of the amount over $28,011, which is always less than 2% of your income.
- Above $35,013 — the full 2%.
The upper threshold is not an arbitrary number. 10% of the excess and 2% of total income meet at exactly 1.25 times the lower threshold, which is where the shade-in stops mattering. Every threshold pair the ATO publishes follows that ratio.
| Taxable income | Medicare levy | Flat 2% would be | Band |
|---|---|---|---|
| $25,000 | $0.00 | $500.00 | Nil |
| $28,011 | $0.00 | $560.22 | Nil |
| $29,000 | $98.90 | $580.00 | Shade-in |
| $32,000 | $398.90 | $640.00 | Shade-in |
| $35,013 | $700.20 | $700.26 | Shade-in |
| $45,000 | $900.00 | $900.00 | Full 2% |
| $75,000 | $1,500.00 | $1,500.00 | Full 2% |
| $100,000 | $2,000.00 | $2,000.00 | Full 2% |
| $150,000 | $3,000.00 | $3,000.00 | Full 2% |
Single taxpayer, no dependants, not entitled to SAPTO. 2025-26 thresholds per ATO Medicare levy reduction for low-income earners.
Worked Example: $29,000 Taxable Income
This is the ATO’s own example. Angie earns $29,000, is single with no dependants and is not entitled to SAPTO. Her income is above the $28,011 threshold but below $35,013, so the shade-in applies:
| Taxable income above the threshold | $29,000 − $28,011 = $989 |
| Levy at 10% of the excess | $98.90 |
| What a flat 2% would have charged | $580.00 |
| Medicare levy payable | $98.90 |
The difference is $481.10 — on an income of $29,000. Getting the shade-in wrong is not a rounding error.
Family Thresholds
If you had a spouse on 30 June, or you maintained a dependent child, a second and more generous test applies. It runs on family taxable income — your income plus your spouse’s, or your own income alone if you are a sole parent — against a family threshold of $47,238, which rises by $4,338 for each dependent child.
Below that threshold no levy is payable at all. Above it the levy is reduced until family income reaches $59,047 (again 1.25 times the threshold), after which the full 2% applies.
| Dependent children | No levy at or under | Full 2% above | SAPTO threshold |
|---|---|---|---|
| None | $47,238 | $59,047 | $61,623 |
| 1 | $51,576 | $64,470 | $65,961 |
| 2 | $55,914 | $69,892 | $70,299 |
| 3 | $60,252 | $75,315 | $74,637 |
ATO, Medicare levy reduction – family income. 2025-26 income year.
The family reduction is applied on top of the low-income reduction, not instead of it. Medicare Levy Act 1986 s 8(2) reduces the levy that would be payable after the individual shade-in. Software that applies only one of the two overstates the levy for most families in the band.
Where both partners would be liable for the levy, the reduction is split between them in proportion to their taxable incomes. Where only one partner is liable — because the other is under the individual threshold — that partner takes the whole reduction.
Seniors and Pensioners
Seniors and pensioners get materially higher thresholds: $44,268 single (full levy above $55,335) and $61,623 for a family (full levy above $77,028). A single senior on $40,000 pays nothing, where anyone else on the same income pays $800.
The qualifying test is the one people get wrong. It is not age — it is entitlement to at least $1 of the seniors and pensioners tax offset. Someone who reaches age-pension age but whose rebate income is too high for any SAPTO cannot use these thresholds. SAPTO for singles cuts out at $52,759 of rebate income, which is below the $55,335 upper Medicare threshold — so the top of the seniors band is reached through the ordinary thresholds instead. Check your entitlement with the SAPTO calculator first.
The ATO’s worked example shows both reductions stacking. Ashton is 68, has taxable income of $49,700, an illness-separated spouse on $21,700, no children, and is entitled to SAPTO:
| Levy at 2% of $49,700 | $994.00 |
| After the seniors low-income reduction (10% of the amount over $44,268) | $543.20 |
| Less the family reduction on family income of $71,400 | −$450.30 |
| Medicare levy payable | $92.90 |
The Medicare Levy Surcharge Is a Different Charge
The surcharge is not the levy. The 2% levy is paid by almost every resident and cannot be avoided by buying insurance. The surcharge is an extra 1% to 1.5% charged only to higher earners who do not hold private patient hospital cover — and it disappears completely the moment you do.
The tiers below are the ATO’s 2026-27 figures. Note the income they test is income for surcharge purposes, which is wider than taxable income: it adds reportable fringe benefits, total net investment losses and reportable super contributions.
| Tier | Singles | Families | Surcharge |
|---|---|---|---|
| Base tier | $105,000 or less | $210,000 or less | 0% |
| Tier 1 | $105,001 – $123,000 | $210,001 – $246,000 | 1.00% |
| Tier 2 | $123,001 – $164,000 | $246,001 – $328,000 | 1.25% |
| Tier 3 | $164,001 or more | $328,001 or more | 1.50% |
ATO, Medicare levy surcharge income, thresholds and rates. 2026-27 income year. Family thresholds rise $1,500 for each dependent child after the first.
The ATO’s example: Tom is 35, single, has no hospital cover, taxable income of $90,000 and reportable fringe benefits of $27,000. His income for surcharge purposes is $117,000, which puts him in Tier 1 at 1% — a surcharge of $1,170, charged on the whole $117,000 rather than on the excess over the threshold. That cliff edge is why the surcharge is usually more expensive than a basic hospital policy once you are past the $105,000 threshold.
How to Avoid It
- Hospital cover, not extras. An extras-only policy does not satisfy the requirement — the policy must include hospital treatment from a registered health insurer.
- The whole year. The surcharge is calculated day by day. A policy that starts in October still leaves you liable for 1 July to 30 September.
- Salary sacrifice will not do it. Reportable super contributions are added back into income for surcharge purposes, so sacrificing reduces your levy but not your surcharge tier.
Our private health insurance and Medicare guide covers the cost comparison in detail.
Who Is Exempt from the Medicare Levy?
Exemptions are separate from reductions. A reduction lowers the levy because your income is low; an exemption removes it because you were not entitled to Medicare, or were entitled to free treatment elsewhere. Some exemptions are half rather than full, which is the detail most summaries skip.
Medical (Category 1)
Full or halfBlind pensioners, and anyone entitled to full free medical treatment for all conditions under Defence Force arrangements or a DVA Repatriation Health Card (Gold Card). You get the full exemption if you had no dependants, or if every dependant was itself exempt or paid the levy. It drops to a half exemption if you had at least one dependant — a spouse, typically — who was neither exempt nor liable for the levy.
Foreign residents
Full for the exempt periodYou pay no Medicare levy for any period you were a foreign resident for tax purposes. Part-year residents pay it only on the residency period.
Not entitled to Medicare benefits
Full for the exempt periodTemporary residents on visas that do not confer Medicare eligibility can apply to Services Australia for a Medicare Entitlement Statement and claim the exemption on lodgment. People from countries with a reciprocal health care agreement — including the UK, New Zealand and Ireland — are entitled to Medicare and so do pay the levy.
Spouse and dependant tests
Full or halfWhere both spouses would otherwise be liable and one is in a Category 1 exemption category, a signed family agreement decides which of you claims the full exemption and which claims the half. Shared-care arrangements split by day: half for the days you had care, full for the days you did not.
You claim an exemption in the Medicare levy section of your tax return, and the ATO works the amount out for you. If your employer withheld the levy through the year but you were entitled to a reduction or exemption, the excess comes back as part of your refund — see the tax return calculator. Residency itself is covered in our non-resident tax guide.
How the Levy Reaches Your Pay
The levy is bundled into PAYG withholding, so it does not appear as its own line on a payslip. The figure shown as “tax” already includes it — on $75,000 of taxable income, $1,500 of the year’s withholding is Medicare levy. Our payslip guide breaks down the rest of the line items.
The surcharge behaves differently. It is not withheld during the year unless you request an upward variation, so people who cross the threshold without cover usually meet it as a bill at lodgment rather than a smaller fortnightly pay. Salary sacrifice reduces taxable income and therefore the levy — see the salary sacrifice calculator — but not the surcharge.
Related Calculators
- Take-Home Pay Calculator — income tax, Medicare levy, HECS and super in one breakdown
- Income Tax Calculator — your tax before the levy is added
- SAPTO Calculator — check the entitlement that unlocks the seniors Medicare threshold
- Private Health Insurance and Medicare — whether cover beats the surcharge at your income
- Low Income Tax Offset — the other concession low-income earners claim
Frequently Asked Questions
Medicare levy questions and answers
How do I calculate the Medicare levy?
Start with your taxable income, not your gross salary. If it is at or under $28,011 you pay nothing. If it is between $28,011 and $35,013 you pay 10% of the amount over $28,011 — the shade-in. Above $35,013 you pay the full 2%. On $100,000 that is $2,000. The calculator at the top of this page runs the same steps, including the family and seniors thresholds.
How much is the Medicare levy on $29,000?
$98.90, not $580. This is the ATO's own worked example. $29,000 sits inside the shade-in band, so the levy is 10% of the $989 above the $28,011 threshold. Any calculator that charges a flat 2% from the first dollar overstates the levy for everyone earning between $28,011 and $35,013.
What income do you start paying the Medicare levy at?
$28,011 of taxable income for most people. Between $28,011 and $35,013 you pay a reduced levy; the full 2% only applies above $35,013. If you are entitled to the seniors and pensioners tax offset the thresholds are $44,268 and $55,335. Families are tested on combined taxable income against $47,238, plus $4,338 for each dependent child.
What is the Medicare levy family threshold?
$47,238 of combined family taxable income, rising by $4,338 for each dependent child. Below it no levy is payable by either partner. Between $47,238 and $59,047 a family reduction cuts the levy, and it is applied on top of any low-income reduction you already qualify for individually. A family with two children has a threshold of $55,914.
Do pensioners pay the Medicare levy?
Often not. If you are entitled to at least $1 of the seniors and pensioners tax offset (SAPTO), your Medicare levy threshold rises to $44,268 single or $61,623 for a family, well above the $28,011 that applies to everyone else. The catch is that the concession follows SAPTO entitlement, not age: SAPTO for singles cuts out at $52,759 of rebate income, and once your entitlement reaches zero you fall back to the ordinary thresholds.
Is the Medicare levy the same as the Medicare levy surcharge?
No, and they are charged for different reasons. The Medicare levy is 2% and almost every Australian resident pays it. The Medicare levy surcharge is an extra 1%, 1.25% or 1.5% charged only to higher earners who do not hold private patient hospital cover — above $105,000 for singles and $210,000 for families in 2026-27. You can owe both at once. Buying hospital cover removes the surcharge and changes the levy by nothing at all.
How do I avoid the Medicare levy surcharge?
Hold a compliant private patient hospital policy for the whole income year. Extras-only cover does not count — it must include hospital treatment. The surcharge is worked out day by day, so a policy that starts in October still leaves you liable for July to September. Nothing removes the 2% levy itself; the surcharge is the only part hospital cover touches.
What income counts for the Medicare levy surcharge?
Income for surcharge purposes is wider than taxable income. It adds reportable fringe benefits, total net investment losses including negative gearing, and reportable super contributions. That is why salary sacrificing into super does not get you under the threshold — the sacrificed amount is added straight back. If you have a spouse, the tier is decided on your combined income, and the family threshold rises by $1,500 for each dependent child after the first.
Who is exempt from the Medicare levy?
Three groups. Blind pensioners and holders of a DVA Gold Card or equivalent Defence Force entitlement claim a Category 1 medical exemption. Foreign residents pay nothing for any period they were not an Australian resident for tax purposes. Temporary residents not entitled to Medicare benefits can get a Medicare Entitlement Statement from Services Australia and claim an exemption. People from reciprocal health care agreement countries such as the UK, New Zealand and Ireland are entitled to Medicare and do pay the levy.
What is a half Medicare levy exemption?
A Category 1 medical exemption drops from full to half where you have at least one dependant — usually a spouse — who is neither in an exemption category nor liable for the levy themselves. You then pay half the levy you otherwise would. Where both partners would be liable and one is exempt, a signed family agreement decides who claims the full exemption and who claims the half. Shared care splits by day: half for days you had care of the child, full for days you did not.
Does the Medicare levy come out of my pay?
Yes, but not as its own line. Employers use the ATO's PAYG withholding tables, which bundle the 2% levy into the single "tax withheld" figure on your payslip. The surcharge is different — it is not withheld at all unless you ask for an upward variation, so people who cross the $105,000 threshold without hospital cover usually meet it as a bill at lodgment.
Which income year do these Medicare levy thresholds apply to?
The low-income, family and seniors thresholds on this page are the ATO's 2025-26 figures — the return being lodged now — and are the most recent published. 2026-27 levy thresholds had not been released when this page was last verified. The surcharge tiers are different: they are published for 2026-27 and are shown on that basis. The 2% rate itself has not changed since 1 July 2014.
How this calculator works▼
The levy is worked out in two stages, in the order the legislation sets. First the individual low-income reduction under Medicare Levy Act 1986 s 7: nil at or under the lower threshold, then 10% of the excess until it meets 2% of income. Then, if you have a spouse or dependants, the family reduction under s 8(2) — 2% × family threshold − 0.08 × (family income − family threshold) — is subtracted from that result, split between spouses in proportion to their taxable incomes where both are liable. Both of the ATO’s published worked examples reproduce to the cent under this method and are pinned in automated tests.
Two income years are in play, deliberately. The low-income, family and seniors thresholds are the ATO’s 2025-26 figures — the latest published, and the year currently being lodged. The ATO had not released 2026-27 Medicare levy thresholds when this page was last verified on 28 July 2026, so it is not labelled with that year. The surcharge tiers are published for 2026-27 and are shown on that basis. The 2% rate has not changed since 1 July 2014.
This is general information, not tax advice, and it assumes a full year of Australian residency with no exemption claimed. Every figure is derived from a single constants file so the calculator, tables and FAQ cannot disagree.
Sources & References
- 1Medicare levy— Australian Taxation Office
- 2Medicare levy reduction for low-income earners (QC27031)— Australian Taxation Office
- 3Medicare levy reduction – family income (QC27032)— Australian Taxation Office
- 4Medicare levy surcharge income, thresholds and rates (QC49961)— Australian Taxation Office
- 5Medicare levy exemption (QC27035)— Australian Taxation Office
Last verified: 28 July 2026. Our content is based on the latest information from official Australian government sources.
James Harrington
Verified AuthorSenior Tax & Payroll Analyst
CPA, Registered Tax Agent (25787011)
James is a CPA-qualified tax professional with over 14 years of experience in Australian taxation and payroll systems. He spent six years at the Australian Taxation Office working on PAYG withholding and individual tax return processing before moving into financial publishing. He now leads the tax content at Pay Calculator Australia, translating complex ATO legislation into clear, actionable guidance.
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