Medicare Levy 2% in Australia 2025–26: Who Pays It and How It’s Calculated

Medicare Levy 2% in Australia 2025–26: Who Pays It and How It’s Calculated

The Medicare Levy is an additional tax that helps fund Australia's Medicare system.

For most Australian tax residents, the standard Medicare Levy is 2% of taxable income.

However, you do not necessarily pay the full 2%.

Your Medicare Levy can be reduced if your income is below certain thresholds, and some people may qualify for a full or partial exemption.

For the 2025–26 financial year, the Medicare Levy thresholds were increased, so it is important to use the latest figures when preparing your tax return.

At AU Finance Tools, we create free calculators and educational resources to help Australians understand tax and personal finance.

You can use our Tax Return Calculator to estimate your tax refund or tax payable.

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What Is the Medicare Levy?

The Medicare Levy is a tax generally imposed on Australian residents for tax purposes.

For taxpayers who are liable for the full levy, the rate is:

2% of taxable income

For example, if your taxable income is $80,000 and you are liable for the full Medicare Levy:

$80,000 × 2% = $1,600

This is separate from your ordinary income tax.

Your total tax liability can therefore include both:

• Income tax
• Medicare Levy

The Medicare Levy is generally calculated based on your taxable income, rather than simply your gross salary.

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Is the Medicare Levy Always 2%?

No.

The commonly quoted 2% Medicare Levy is the standard rate.

However, people with lower taxable incomes may receive a Medicare Levy reduction, and some people may be completely exempt.

The amount you actually pay depends on factors including:

• Your taxable income
• Your family circumstances
• Whether you qualify for the Seniors and Pensioners Tax Offset (SAPTO)
• Your Medicare eligibility
• Your Australian tax residency during the year
• Other circumstances relevant to the Medicare Levy rules

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Medicare Levy Thresholds for 2025–26

For the 2025–26 financial year, the Medicare Levy thresholds for most individual taxpayers are:

If your taxable income is at or below the applicable lower threshold, you generally do not pay the Medicare Levy.

If your income is between the lower and upper thresholds, the levy is generally reduced.

Once your income reaches the upper threshold, the full 2% Medicare Levy generally applies.

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What Changed for 2025–26?

The Medicare Levy thresholds for 2025–26 were increased.

For most individual taxpayers, the lower threshold increased to:

$28,011

The upper threshold increased to:

$35,013

This means taxpayers should not use the older $27,222 and $34,027 figures when calculating their Medicare Levy for the 2025–26 financial year.

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How Does the Medicare Levy Phase-In Work?

The Medicare Levy does not suddenly jump from 0% to 2% when you cross the lower threshold.

Instead, it generally phases in at 10% of the amount above the lower threshold.

For most individual taxpayers in 2025–26:

• At or below $28,011 → no Medicare Levy
• Between $28,011 and $35,013 → reduced Medicare Levy
• At or above $35,013 → generally the full 2%

For example, suppose your taxable income is $30,000.

The amount above the lower threshold is:

$30,000 − $28,011 = $1,989

The simplified reduced levy is:

$1,989 × 10% = $198.90

The actual amount is determined under the Medicare Levy rules based on your circumstances.

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Example: Medicare Levy on $50,000

Suppose you are an Australian tax resident and have taxable income of $50,000 for 2025–26.

Because $50,000 is above the individual phase-in range, the standard Medicare Levy generally applies.

Calculation:

$50,000 × 2% = $1,000

So your Medicare Levy would generally be $1,000, before considering any other applicable circumstances.

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Example: Medicare Levy on $30,000

Now suppose your taxable income is $30,000.

Because this falls between the 2025–26 lower and upper thresholds, the reduced levy applies.

Simplified calculation:

($30,000 − $28,011) × 10%

= $198.90

So your Medicare Levy would be approximately $198.90.

The actual amount is determined under the Medicare Levy rules based on your circumstances.

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Medicare Levy for Seniors and Pensioners

Higher Medicare Levy thresholds apply to certain taxpayers who are entitled to the Seniors and Pensioners Tax Offset (SAPTO).

For a taxpayer eligible for SAPTO in 2025–26:

• Lower threshold: $44,268
• Upper threshold: $55,335

If your taxable income is at or below the lower threshold, you generally do not pay the Medicare Levy.

If your taxable income falls within the phase-in range, a reduced levy may apply.

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Medicare Levy for Families

Different thresholds apply when determining the Medicare Levy for families.

The family threshold and the way the reduction is calculated depend on your family circumstances, including the number of dependent children or students.

If you have a spouse or dependent children, you should not simply apply the individual threshold to your circumstances.

The ATO applies separate rules when calculating the Medicare Levy for families.

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Do Foreign Residents Pay the Medicare Levy?

Foreign residents are generally exempt from the Medicare Levy because they are generally not entitled to Medicare benefits.

However, your tax residency and entitlement to Medicare benefits are separate matters that need to be considered when completing your tax return.

If you were an Australian tax resident for only part of the financial year, you may also qualify for a Medicare Levy exemption for part of the year.

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Who Can Be Exempt From the Medicare Levy?

Some people may qualify for a full or partial Medicare Levy exemption.

Examples can include people who:

• Are foreign residents for tax purposes
• Are not entitled to Medicare benefits
• Meet certain medical exemption requirements
• Were not entitled to Medicare benefits for part of the year

You may need supporting documentation to claim an exemption.

For example, some people may need a Medicare Entitlement Statement from Services Australia to support an exemption.

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Medicare Levy Reduction vs Medicare Levy Exemption

A reduction and an exemption are not the same thing.

Medicare Levy Reduction

A reduction is generally related to your income and family circumstances.

For example, if your taxable income falls within the low-income phase-in range, you may pay less than the standard 2%.

Medicare Levy Exemption

An exemption applies when you meet specific eligibility requirements.

For example, a person who is not entitled to Medicare benefits may qualify for an exemption.

You should consider your eligibility for a reduction and exemption separately.

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Does Salary Affect the Medicare Levy?

The Medicare Levy is generally calculated using taxable income, not simply your salary.

Taxable income is generally your assessable income minus allowable deductions.

For example:

Salary: $80,000

Allowable deductions: $2,000

Simplified taxable income:

$80,000 − $2,000 = $78,000

If the full 2% Medicare Levy applies:

$78,000 × 2% = $1,560

This is why the Medicare Levy calculation can differ from simply taking 2% of your gross salary.

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Medicare Levy vs Medicare Levy Surcharge

The Medicare Levy and Medicare Levy Surcharge (MLS) are different charges.

The Medicare Levy is generally 2% of taxable income for people who are liable for the full levy.

The Medicare Levy Surcharge is an additional charge that can apply to higher-income taxpayers who do not have an appropriate level of private patient hospital cover.

The MLS has separate income thresholds and rates.

Do not confuse the Medicare Levy with the Medicare Levy Surcharge when estimating your tax liability.

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Does Private Health Insurance Remove the Medicare Levy?

No.

Having private health insurance does not generally remove the standard Medicare Levy.

Private hospital cover can be relevant to the Medicare Levy Surcharge, which is a separate charge.

For example, a higher-income taxpayer may still pay the ordinary 2% Medicare Levy even if they have private health insurance.

Private hospital cover may help them avoid the Medicare Levy Surcharge if they meet the relevant requirements.

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Medicare Levy and Tax Refunds

The Medicare Levy forms part of your overall tax calculation.

Your final tax refund or amount payable depends on your complete tax position.

Factors can include:

• Income tax
• Medicare Levy
• Medicare Levy Surcharge
• Tax withheld by your employer
• Tax deductions
• Tax offsets
• HECS-HELP or other study loan repayments
• Private health insurance
• Tax residency
• Other applicable adjustments

For this reason, you cannot determine your tax refund simply by calculating 2% of your salary.

Use our Tax Return Calculator to estimate your overall tax position.

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Common Medicare Levy Mistakes

Assuming Everyone Pays Exactly 2%

The standard rate is 2%, but low-income reductions and exemptions can apply.

Using the Wrong Threshold

Medicare Levy thresholds change over time.

For a 2025–26 tax return, use the current 2025–26 thresholds, including the updated figures of $28,011 and $35,013 for most individual taxpayers.

Confusing the Medicare Levy With the MLS

The Medicare Levy is generally 2%.

The Medicare Levy Surcharge is a separate charge that can apply to higher-income taxpayers without appropriate private hospital cover.

Calculating 2% of Gross Salary

The Medicare Levy is generally based on taxable income rather than simply your gross salary.

Assuming Your Visa Determines Everything

Your tax residency and entitlement to Medicare benefits can affect your Medicare Levy position.

A visa alone does not necessarily determine whether you are liable for the levy.

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Frequently Asked Questions

What is the Medicare Levy rate in Australia?

The standard Medicare Levy rate is 2% of taxable income for taxpayers who are liable for the full levy.

Low-income reductions and exemptions can apply.

What is the Medicare Levy threshold for 2025–26?

For most individual taxpayers, the 2025–26 lower threshold is $28,011.

The reduced levy generally phases in up to $35,013, after which the full 2% generally applies.

Do I pay the Medicare Levy if I earn less than $28,011?

Generally, no.

If your taxable income is at or below the applicable lower threshold, you generally do not pay the Medicare Levy.

Other circumstances can affect the calculation.

What if I earn between $28,011 and $35,013?

The Medicare Levy generally phases in at 10% of the amount above $28,011.

You therefore pay less than the full 2% during this range.

Do seniors and pensioners have a higher Medicare Levy threshold?

Certain taxpayers who are entitled to the Seniors and Pensioners Tax Offset can have higher Medicare Levy thresholds.

For 2025–26, the applicable thresholds are $44,268 and $55,335.

Do foreign residents pay the Medicare Levy?

Foreign residents are generally exempt from the Medicare Levy because they are generally not entitled to Medicare benefits.

Your individual circumstances and Medicare entitlement need to be considered.

Does private health insurance cover the Medicare Levy?

No.

Private hospital insurance is relevant to the Medicare Levy Surcharge, not the standard Medicare Levy.

Is the Medicare Levy included in income tax?

The Medicare Levy is a separate levy that forms part of your overall tax liability.

It is generally calculated in addition to your ordinary income tax.

Is the Medicare Levy based on salary or taxable income?

The Medicare Levy is generally based on taxable income.

Allowable deductions can therefore affect the amount of Medicare Levy you pay.

Is the Medicare Levy the same as the Medicare Levy Surcharge?

No.

The Medicare Levy is generally 2% of taxable income for people liable for the full levy.

The Medicare Levy Surcharge is an additional charge that can apply to higher-income taxpayers without appropriate private hospital cover.

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Calculate Your Medicare Levy

The Medicare Levy is only one part of your Australian tax calculation.

Your final tax position can also depend on:

• Taxable income
• Tax deductions
• Tax withheld
• Tax offsets
• Medicare Levy
• Medicare Levy Surcharge
• HECS-HELP repayments
• Private health insurance
• Tax residency
• Other applicable circumstances

Use our Tax Return Calculator to estimate your tax refund or tax payable.

You can also read:

Australian Tax Rates 2025–26: Income Tax Brackets Explained

Tax Deductions in Australia: What Can You Claim on Your Tax Return?

Medicare Levy vs Medicare Levy Surcharge: What's the Difference?

Australian Tax Resident vs Non-Resident: What's the Difference?

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Key Takeaways

• The standard Medicare Levy rate is 2% of taxable income.
• Not everyone pays the full 2%.
• For 2025–26, the lower threshold for most individuals is $28,011.
• The reduced levy generally phases in up to $35,013.
• Certain seniors and pensioners have higher thresholds.
• Families have separate thresholds based on family circumstances.
• Some taxpayers may qualify for a full or partial exemption.
• Foreign residents are generally exempt because they are generally not entitled to Medicare benefits.
• The Medicare Levy is different from the Medicare Levy Surcharge.
• Private hospital insurance does not generally remove the standard Medicare Levy.
• The Medicare Levy is generally calculated using taxable income rather than gross salary.
• Always use the thresholds applicable to the financial year of your tax return.

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Information Sources

This guide is based primarily on publicly available information from the Australian Taxation Office (ATO), including the ATO's 2026 individual tax return and Medicare Levy guidance.

The 2025–26 Medicare Levy thresholds were increased, so older sources may show lower figures such as $27,222 and $34,027.

Tax rules can change. Always refer to the latest ATO guidance when preparing your tax return.

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Disclaimer

This article provides general information only and should not be considered financial, tax, legal or professional advice.

Medicare Levy calculations can depend on your income, family circumstances, residency, Medicare entitlement and other factors.

For advice about your individual circumstances, refer to the Australian Taxation Office (ATO) or a qualified tax professional.