Health Insurance with Money Matchmaker®

How to quickly and effectively calculate your Medicare levy

Written by

Shaun McGowan

Medicare is Australia’s national health insurance scheme.

If you’re eligible (and most of us are) it gives you access to free or subsidised treatment by health professionals (doctors, specialists, optometrists, dentists and even, in some circumstances, other allied health practitioners).

It also entitles you to free treatment and accommodation as a public patient in a public hospital.

All in all, it’s a pretty awesome service. But the money to pay for it has to come from somewhere.

That ‘somewhere’ is mostly the Medicare levy.

When you work and pay taxes in Australia you will pay the Medicare Levy, unless you earn less than $21,980 per annum. (For seniors or pensioners entitled to a tax offset, that threshold is $34,758).

The Medicare Levy is 2% of your annual taxable income – and it’s in addition to your income tax. Your employer will deduct the levy throughout the financial year, along with your income tax, from your regular pay packet.

So, what you don’t see, you won’t miss! Of course, nothing is ever straightforward with taxes. So how do you know what your ‘contribution’ to Australia’s health care system will actually be – and could you actually be exempt from paying it?

Let’s start with the exemptions

Who is exempt from paying the Medicare levy?

Exemptions will depend on your circumstances.

  • If you weren’t an Australian resident for tax purposes for the whole of a financial year, you could be exempt from the Medicare levy. But you’ll need to have been absent for more than 183 days to qualify for this exemption. The good news is, those days don’t have to be consecutive.
  • By the way, you don’t have to be an Australian citizen to be considered a ‘resident’ for tax purposes. You only need to live and work in Australia with an appropriate visa.
  • On the other hand, if you’re an Australian living and working overseas for a longer period – even if your ‘domicile’ (permanent home) is still Australia – you could be exempt from paying the Medicare levy.
  • If you’re a New Zealand citizen who has spent less than six months in Australia within a 12-month period you could also be exempt.
  • Norfolk Island residents are exempt.
  • If you are a visitor to Australia and are not eligible for Medicare under a Reciprocal Health Care Agreement, you too could be exempt.

The Australian Taxation Office (ATO) has detailed information to help you figure out whether you’re entitled to an exemption or a reduction.

What about Australian Defence Force Personnel?

You could be entitled to a full or partial exemption from paying the Medicare levy If you are a serving member of the Australian Defence Force (ADF), as all your health care requirements will be covered by the ADF.

When you leave the ADF, you’ll need to consider your circumstances and whether it would be worthwhile for you to take out private health insurance.

At that point, regardless of whether or not you take out health insurance, you will most likely have to start paying the Medicare levy. If you choose not to take out insurance and you earn more than $90,000 you could also end up being liable for the additional Medicare levy surcharge, which could be up to another 1.5% of your income.

Ok, so unless you qualify for one of those exemptions, you’re going to get hit with the Medicare levy.

Let’s take a look at how much you can expect to pay.

How to calculate your Medicare levy contribution

Your Medicare levy will be an even 2% of your taxable income – so you won’t be able to calculate an exact number until you’ve got all the information you need for your tax return.

You’ll have to look at your income (from salary and all other sources – rent, dividends, interest etc) and then calculate any deductions you’re entitled to (for eligible expenses or charitable donations, for example).

Once you have a figure for your net taxable income figure, simply calculate 2% and you’ll have the cost of your Medicare levy.

Simples.

Note that your Medicare levy is based on your taxable income, not on the amount of tax you actually pay.

Unfortunately, even if you qualify for tax offsets like SAPTO (Seniors and Pensioners Tax Offset) or LMITO (Low to Middle-Income Tax Offset) which reduce (or even eliminate) your tax bill, you’ll still have to pay your 2% Medicare levy.

Oh, and if you’re a high earner, ($90,000+ for singles or $180,000+ for families) you may also have to pay an extra 1% – 1.5% Medicare levy surcharge, if the ATO doesn’t consider you to have ‘adequate’ private health insurance.

Conclusion

If you want some help calculating your income tax liability, along with the amount you’ll pay in Medicare levy, Money.com.au has an easy to use calculator with handy explanations.

Just key in your numbers and you will get a detailed break-down of what you must pay per salary period and what you can expect to take home. A great budgeting tool.

Looking for a loan? Get the best deals with our Money Matchmaker®

FIND YOUR LOAN

About Money.com.au

Money.com.au want to make managing money easy and fun! By giving Australians simple tools so they can make the best decisions they can about their money.

We understand that the world of finance is complex, and offer free, extensive guides on Personal Loans, Car Loans and Business Loans, along with tools like our Budget Planning Spreadsheet to help you better manage and understand personal finance.

About the Author

Shaun McGowan from money.com.au

Shaun

McGowan

Shaun McGowan

Shaun is the founder of Money.com.au and is determined to help people pay as little as possible for financial products. Through education and building world class technology. Previously Shaun co-founded CarLoans.com.au and Lend.

Address

Money Pty Ltd,
Suite 3, Level 2,
1 Taylor Street,
Moorabbin, VIC, 3189 Australia

Company

Money Pty Ltd trading as Money
ABN: 42 626 094 773
ACL: 528698
AFCA: 83955

© Copyright 2021 Money Ltd.



Disclaimer

Money Pty Ltd (trading as Money.com.au) provides information about credit products and is authorised to do so as the holder of Australian Credit Licence 528698. Money.com.au does not compare every Lender in Australia. We are not a broker or credit provider and when we provide information via this website, we are not providing you with a recommendation or suggestion about a particular credit product. When you apply for a credit product via the Money.com.au website, you are not applying with us, you are applying directly with a Lender Partner. Before entering into any credit product from one of our Lender Partners, you should confirm the rates and product information with the Lender. All information on this website is general advice only and does not take into account your objectives, financial situation or needs. You should consider whether this advice is right for you and we encourage you to seek independent financial advice.