How to quickly and effectively calculate your Medicare Levy
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 withhold 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.
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.
If you want some help calculating your income tax liability, along with the amount you’ll pay in Medicare levy, Money.com.au has a medicare levy calculator with handy explanations.
Just key in your total taxable income 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.