What is the Medicare Levy?
Have you ever looked at your Notice of Assessment or a tax refund estimate and seen a line for the medicare levy? Not sure what it is? Don’t worry, you’re not alone and this article has got you covered.
For most Australians healthcare is essentially free. If you get sick and you need to go to the hospital, you can and it won’t cost you a cent. That’s because we have the Medicare Levy which most people pay each week out of their salary. This levy goes towards funding hospitals, doctors, nurses and other health related costs that come with providing free healthcare to all Australians.
Who Pays the Medicare Levy?
If you earn more than $28,501 in the most recent tax year, you will pay the Medicare Levy at a simple 2% of your taxable income.
Using some very simple numbers:
- A part-time or casual employee who earned $20,000 pays zero Medicare Levy.
- An employee earning $50,000 in the last tax year pays $1,000.
- An employee earning $100,000 pays $2,000 in Medicare Levy.
These amounts are all in addition to your regular income taxes based on your tax bracket.
Can you avoid paying the Medicare Levy?
There are just two main ways to avoid paying the levy and they do not apply to many Australians:
1. You’re a low income earner
Some low income earners (depends on your annual income) do not have to pay the levy or receive a reduction on the levy rate.
Low income singles rates are:
- Do not pay: Income equal to or less than $22,801 (or $36,056 if entitled to the seniors and pensioners tax offset).
- Medicare Levy Reduction: You qualify for a reduced rate if your income is between $22,802 and $28,501 (or $45,069 if entitled to the seniors and pensioners tax offset)
Reduction for families
If your income is above the $28,501 threshold you may still qualify for a reduction based on your family income if you meet one of the following criteria:
- Had a spouse (married or de facto)
- Are entitled to an invalid carer tax offset for your child
- Had sole care of one or more dependent children.
If one of the above applies to you, then you will qualify for a reduced Medicare Levy rate if your family income is equal to or less than $48,092 (or $62,738 if entitled to the seniors and pensioners tax offset) plus $4,416 per dependent child you have.
2. You have a Medicare Entitlement Statement
This is a statement the Department of Human Services issues to people who are not entitled to received Medicare benefits based on their visa type. You can apply for a statement if you fit any one of the following categories:
- A temporary visa holder and you’re not eligible for Medicare under a reciprocal health care agreement
- An Australian permanent resident who has lived outside Australia for 12 months or more.
- A temporary visa holder who hasn’t applied for permanent residency
- A New Zealand citizen who lived in Australia for under 6 months within a 12 month period
- An Australian citizen who has lived overseas for 5 years or more.
If you have an entitlement statement, be sure to complete “M2 – Medicare Levy Exemption” on your tax return which allows you to avoid paying the levy.
You or your tax agent can apply for a medicare entitlement statement. More information can be found on the Services Australia website here.
Important: You need the entitlement statement before you do your tax return. Otherwise you will still need to pay the Medicare Levy.
I lodged my tax return without a Medicare Entitlement Statement
If you’ve already lodged your tax return, but you qualify for a Medicare Entitlement Statement, please contact us right away.
As long as your tax return was lodged within the last two years we can submit an amended tax return to the ATO and get any medicare levy you already paid refunded to you.
You can reach out to us on [email protected] or 1300 693 829 and our team will talk you through the process.
What about the Medicare Levy Surcharge?
The Medicare Levy Surcharge is different to the Medicare Levy. It is a charge levied on medium and high income earners who do not have private hospital cover. It ranges from 1-1.5% of your annual income. Please click here to read more about the Medicare Levy Surcharge.