Medicare Levy and Medicare Levy Surcharge Explained

The Medicare levy and the Medicare Levy Surcharge (MLS) are two separate charges that can affect your tax. If you’re looking for a Medicare levy calculator Australia style, you need to know both. The standard Medicare levy is 2% of taxable income for most Australian residents and helps fund the public health system. The MLS is an extra 1% to 1.5% that applies to higher earners who don’t have an adequate level of private hospital insurance. This guide explains how each works and how to estimate what you’ll pay. Our free pay calculator includes both the Medicare levy and the surcharge so you can see your take-home pay.

What is the Medicare levy?

The Medicare levy is 2% of your taxable income. It’s paid by most Australian residents and is designed to help fund Medicare. If your income is below a certain level, you may get a reduction or exemption. The ATO uses your taxable income and family situation to work out whether you pay the full 2%, a reduced amount, or nothing. When you use a pay or tax calculator, the 2% levy is often included in the “total tax” figure so you see your full deduction.

Who pays the Medicare Levy Surcharge?

The Medicare Levy Surcharge applies if your income for MLS purposes is above the threshold (which varies by tier) and you don’t have an appropriate level of private patient hospital cover for the full year. The surcharge is in addition to the 2% levy. The idea is to encourage higher earners to take out private hospital insurance and reduce pressure on the public system. The MLS is calculated on your “income for MLS purposes,” which can include your taxable income plus some add-backs like reportable fringe benefits and super contributions. Thresholds are set each year and are different for singles and families.

MLS tiers and rates

The surcharge is tiered. Once your income is above the base threshold, you pay 1% on income above that. At higher income levels the rate increases to 1.25% and then 1.5%. The exact thresholds are updated annually. If you have private hospital cover that meets the requirements for the full income year, you generally don’t pay the MLS even if your income is above the threshold. A Medicare levy calculator Australia residents can use will often include an option for “private health cover” so you can see the difference with and without the surcharge.

How to estimate your Medicare and MLS

To get a rough idea of your 2% Medicare levy, take your taxable income and multiply by 0.02. For the MLS, you need to know your income for MLS purposes and whether you had the right private cover. Our pay calculator asks whether you have private hospital cover and uses your income to estimate both the levy and the surcharge. That way you see your total tax and take-home pay in one go. For an exact result, use the ATO’s calculator or your tax return.

Reductions and exemptions

You may be entitled to a Medicare levy reduction if your income is below the full-payment threshold (there are different thresholds for singles and families). Some people are exempt from the levy entirely—for example, if you’re not eligible for Medicare or you meet certain medical or other conditions. The ATO has the full list. Our pay calculator assumes you’re a resident who pays the full 2% unless you’re in a low-income band; for edge cases, check the ATO.