Medicare Levy

IN THIS ARTICLE

• What is Medicare levy?
• Medicare levy reduction for low-income earners
• Medicare levy reduction – family income
• Medical exemption from Medicare levy
• Foreign residents Medicare levy exemption
• Not entitled to Medicare benefits
• Dependants for Medicare levy exemption

What is the Medicare levy?

The Medicare levy is an amount you pay in addition to the tax you pay on your taxable income.

The Medicare levy helps fund some of the costs of Australia’s public health system known as Medicare. The Medicare levy is 2% of your taxable income.

You may get a reduction or exemption from paying the Medicare levy, depending on you and your spouse’s income and circumstances. You need to consider your eligibility for a reduction or an exemption separately.

Generally, the pay as you go amount your employer withholds from your salary or wages includes an amount to cover the Medicare levy.

Medicare levy exemption

Find out about Medicare levy exemptions for medical conditions, foreign residents or entitlement to Medicare benefits.

A. Medical exemption from Medicare levy

When you can claim a full or half exemption from the Medicare levy.

1. Conditions for medical exemption from Medicare levy

You may be able to claim a full or half Medicare levy exemption if you satisfy both of the following conditions:

a. one of the following Category 1 medical conditions applied during all or part of the income year

• you were a blind pensioner
• you received sickness allowance from Centrelink (allowance ceased 20 September 2020)
• you were entitled to full free medical treatment for all conditions under either

• • Defence Force arrangements
  • Veterans’ Affairs Repatriation Health Card (Gold Card)

b. during the period you met a condition above, you also met one of the conditions listed in the table below.

You claim this exemption when you lodge your income tax return. This is also known as an exemption under Category 1.

CONDITIONS AND THEIR APPLIED MEDICARE LEVY EXEMPTION

2. Family agreement for Medicare levy exemption

A family agreement is a written agreement signed by you and your spouse. You complete a family agreement only if both you and your spouse would have to pay the Medicare levy were it not for your exemption category status.

You don’t need to send this agreement to us unless requested. If you fail to keep the agreement, both of you may become liable for the Medicare levy.

The agreement must contain the statement – ‘We agree that the Medicare levy exemption in respect of our dependants for the 2021–22 year will be claimed as follows’

• name of person claiming the full exemption
• name of person claiming the half exemption
• your signature
• your spouse’s signature

The agreement must be signed on or before the date the person claiming the full exemption lodges their tax return, unless the Commissioner of Taxation allows further time.

B. Foreign residents Medicare levy exemption

If you were a foreign resident for tax purposes for:

1. the full year, you can claim a full exemption from the Medicare levy
2. only part of the year, you can still claim full exemption from the Medicare levy for that period if

• you didn’t have any dependants for that period
• all your dependants were in a Medicare levy exemption category for that period.

You claim this exemption when you lodge your income tax return. This exemption is known as exemption category 2 on your tax return when you complete the Medicare levy section.

C. Not entitled to Medicare benefits

If you were not entitled to Medicare benefits during the year, you may not have to pay the Medicare levy. This is also known as an exemption under category 3.

1. Claiming an exemption

a. You can claim a full exemption for any period that you have a Medicare Entitlement statement showing you were not entitled to Medicare benefits because you were a temporary resident for Medicare purposes, and

• you did not have any dependants for that period, or
• all your dependants (including your spouse) were also in a Medicare levy exemption category for that period

b. are a member of a diplomatic mission or consular post in Australia and meet other conditions.

If you qualify for an exemption, you claim the exemption through your tax return.

2. Medicare Entitlement Statement

a. A Medicare Entitlement StatementExternal Link (MES) from Services Australia shows the period in a year that you were not entitled to Medicare benefits.

b. Applying for a MES and lodging your tax return

• Apply for a Medicare Entitlement StatementExternal Link. Even if you have received the exemption before, it doesn’t mean you’ll get it every year.
• Wait to receive your MES before lodging your tax return. It can take up to eight weeks for your application to be processed and for you to receive your MES from Services Australia.
• Lodge your tax return once you have received your MES. We will work out if you are exempt from paying the Medicare levy when we assess your tax return. If you have an MES, it doesn’t automatically mean you are exempt from the Medicare levy. All your dependants are also required to be in a Medicare levy exemption category.

This exemption is known as exemption category 3 on your tax return when you complete the Medicare levy section.

3. Member of a diplomatic mission or consular post in Australia

You do not have to pay the Medicare levy if you are a member of a diplomatic mission or consular post in Australia (or a member of such a person’s family and you were living with them) and:

a. were not an Australian citizen, and
b. do not ordinarily live in Australia, and

• you did not have any dependants for that period, or
• all your dependants (including your spouse) were in a Medicare levy exemption category for that period.

D. Dependants for Medicare levy exemption

For the Medicare levy exemption (but not for the Medicare levy reduction), dependant means an Australian resident for tax purposes you maintained who was:

• your spouse
• your child under 21 years old
• your child, 21 to 24 years old
• • receiving full-time education at a school, college or university, and
  • whose adjusted taxable income for the period was less than the total of $282 plus $28.92 for each week you maintained them.

Maintenance of a dependant

You maintained a dependant if any of the following applied:

• you both lived in the same house
• you gave them food, clothing and lodging
• you helped them to pay for their living, medical and educational costs

If you had a spouse for the whole income year and your spouse worked at any time during the income year, we will still consider you to have maintained your spouse as a dependant for the whole income year.

If the two of you were temporarily separated, for example, because of holidays or overseas travel, we still consider you to have maintained a dependant.

A child is treated as an equal dependant of each parent (irrespective of the number of days the child was in each parent’s care) if:

• the parents of the child lived separately and apart for all, or part, of the income year, and
• the child was a dependant of each of them.

However, if a parent receives Family Tax Benefit Part AExternal Link for the child, the child is a dependant of that parent for the number of days they were in their care.

Medicare levy reduction

Find out if you are eligible for a Medicare levy reduction based on your income or family income.

A. Medicare levy reduction for low-income earners

Your Medicare levy is reduced if your taxable income is below a certain amount, or you may not have to pay it at all.

In 2022–23, you do not have to pay the Medicare levy if your taxable income is equal to or less than $24,276 ($38,365 for seniors and pensioners entitled to the seniors and pensioners tax offset (SAPTO))*.

Your Medicare levy will be reduced if your taxable income is between $24,276 and $30,346 (between $38,365 and $47,957 for seniors and pensioners entitled to SAPTO)*. We work out the reduction for you when you lodge your tax return.

You may still qualify for a reduction based on your family taxable income.

If you do not qualify for a reduction in the Medicare levy, you may still qualify for a Medicare levy exemption.

You can use the Medicare levy calculator to work out your Medicare levy payable.

B. Medicare levy reduction – family income

Find out if you are eligible for a Medicare levy reduction based on your family income.

1. Eligibility for Medicare levy reduction – family taxable income

You may be eligible for a Medicare levy reduction based on your family taxable income if you meet both of the following:

a. Your individual taxable income was more than $30,345 ($47,956 for seniors and pensioners entitled to the SAPTO) in 2022–23.
b. You either

• had a spouse (married or de facto)
• had a spouse that died during the year, and you did not have another spouse before the end of the year
• are entitled to an invalid and invalid carer tax offset in respect of your child
• had sole care of one or more dependent children.

If you have a spouse, you may not get SAPTO even if you meet all the eligibility conditions. This is because the amount of the tax offset is based on your individual rebate income, not your combined rebate income. Even if you are eligible for SAPTO but do not get the offset, it doesn’t entitle you to a Medicare levy reduction.

You can use the Medicare levy calculator to work out your Medicare levy payable.

2. Family taxable income thresholds

a. Your Medicare levy may be reduced for 2022–23 if your family taxable income is more than:

• $40,939 and less than $51,174 (Not eligible for SAPTO)
• $53,406 and less than $66,758 (if you are entitled to the seniors and pensioners tax offset (SAPTO)

If you have a dependent child, add $4,700 to the thresholds above for each dependent child.

3. Calculate your family taxable income

Family taxable income is either:

a. the combined taxable income of you and your spouse (including a spouse who died during the year)
b. your taxable income if you were a sole parent.

If you received a superannuation lump sum payment when you reached your preservation age and were under 60 years old, the amount of the taxed element (not including the amount of any death benefit) that does not exceed your low-rate cap for the year is not included in your taxable income for Medicare levy purposes.

Your low-rate cap is the cap amount that applies to that year less any superannuation lump sums you received in previous years.

4. Dependent children for Medicare levy reduction purposes

For Medicare levy reduction purposes, a dependent child is any child:

a. you maintained who was an Australian resident, and
b. whose adjusted taxable income was less than the amounts in the table below.

Dependent children – Adjusted taxable income (ATI) thresholds

5. Sole care definition

Sole care means you alone had full responsibility for the upbringing, welfare and maintenance of a child or student.

You aren’t considered to have sole care if you are living with a spouse (married or de facto) unless there are special circumstances. For example, if a spouse is medically incapable of assisting you with the care.