Medicare levy
A 2% levy on most taxable income that funds public health.
The Medicare levy is an extra 2% charged on most of your taxable income to help fund Australia’s public health system. It sits on top of income tax. Low-income earners pay a reduced levy or none, and higher earners without appropriate private hospital cover may also pay the separate Medicare levy surcharge.
The levy and the surcharge are two different things. The 2% levy applies to most taxpayers regardless of cover. The surcharge is an additional amount that can apply to higher earners, and only APPROPRIATE private patient hospital cover avoids it — extras-only cover does not qualify, and whether it applies also depends on your income, any exemption you hold, and cover for the family members counted with you. Worth checking the specifics against your policy rather than assuming any health insurance is enough.
Worked example
On $80,000 of taxable income the levy is 2%, or $1,600, charged on top of the income tax on that amount. It is not deducted separately from your pay — it is folded into what your employer withholds, which is why it usually surfaces only when you look at your notice of assessment.
Common mistake
Reading the levy as the top marginal rate plus 2% and stopping there. The levy is charged across your taxable income rather than only the top slice, which is why it shows up as a flat line on an assessment instead of moving with your bracket.
Grounded in ATO guidance. Figures last checked . General information, not tax advice.
Related terms
Marginal tax rate
The tax rate on your next dollar of income.
Tax-free threshold
The first $18,200 of income you can earn tax-free.
CGT discount (50%)
Hold an asset over 12 months and only half the gain is taxed.
Franking credits
A credit for company tax already paid on your dividends.
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Questions about this term
Medicare levy: common questions
- Is the Medicare levy the same as the Medicare levy surcharge?
- No — they are two different things. The 2% levy applies to most taxpayers on most of their taxable income, whatever their health cover. The surcharge is an additional amount that can apply to higher earners without appropriate private patient hospital cover; whether it applies depends on your income, any exemption you hold, and the family members counted with you.
- How is the Medicare levy worked out on my income?
- It is 2% of most of your taxable income, charged on top of income tax. On $80,000 of taxable income the levy is $1,600. It is not deducted as a separate line from your pay — your employer folds it into what is withheld — which is why it usually surfaces only on your notice of assessment. Low-income earners pay a reduced levy or none.
- Does the Medicare levy only apply to the top slice of my income?
- No — it is charged across your taxable income, not just the part in your top bracket. Reading it as “top marginal rate plus 2%” and stopping there is the usual slip. Because it applies to most of your income, it shows up as a flat line on an assessment rather than moving with your bracket.
- Will any private health insurance get me out of the surcharge?
- Not any policy — only appropriate private patient hospital cover avoids the surcharge, and extras-only cover does not qualify. Whether the surcharge applies at all also depends on your income, any exemption you hold, and cover for the family members counted with you, so it is worth checking the specifics against your policy rather than assuming.
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