Every Australian tax return includes a line item that catches many people off guard: the Medicare levy. It is not a deduction your employer withholds in a separate line on your payslip, and it is not optional — it is a compulsory charge on your taxable income that helps fund Medicare, the country’s public health system. Yet because it is calculated at tax return time rather than in your weekly pay cycle, plenty of workers first meet it when their refund comes back smaller than expected.
This guide explains exactly how the Medicare levy for 2025-26 is calculated, who pays it, the low-income thresholds that reduce or wipe it out, and how it differs from the Medicare levy surcharge. Every figure below is based on the ATO’s published 2025-26 rates.
What Is the Medicare Levy?
The Medicare levy is a flat 2% of your taxable income, assessed by the ATO when you lodge your tax return: earn $60,000 in taxable income in 2025-26 and you owe $1,200 — no brackets or marginal rates to worry about.
What complicates things is the low-income relief system. Rather than hitting low earners with the full 2% from the first dollar, the ATO applies thresholds below which you pay nothing at all, and a “shade-in” range where a reduced amount ramps up gradually to the full 2%. Certain people — including foreign residents and some visa holders — can be exempt entirely.
Want a quick answer for your own situation? The Medicare levy calculator applies the 2025-26 thresholds and shade-in formula to your income automatically.
How the Medicare Levy Is Calculated in 2025-26
The calculation depends on where your taxable income lands relative to two thresholds — the lower threshold (where the levy starts) and the upper threshold (where the full 2% kicks in). Three cases:
- At or below the lower threshold: you pay $0 in Medicare levy.
- Between the lower and upper thresholds: you pay a reduced levy equal to 10 cents for every $1 of income above the lower threshold. This is the shade-in rule — the levy grows gradually rather than jumping from zero to full rate.
- Above the upper threshold: you pay the full 2% of your total taxable income.
An important protection is built into the shade-in: you never pay more than 2% of your income in Medicare levy. By the time income reaches the upper threshold, the reduced levy equals the full 2% — the transition is seamless, not a cliff.
Medicare Levy Low-Income Thresholds for 2025-26
The thresholds were increased from 1 July 2025, meaning slightly more income is sheltered from the levy this year than last. The three categories are:
- Singles: no levy at or below $28,011; reduced levy from $28,012 up to $35,013; full 2% above $35,013.
- Single seniors and pensioners (those eligible for the seniors and pensioners tax offset): no levy at or below $44,268; reduced levy up to $55,335; full 2% above.
- Families (couples or single parents): the lower threshold is $47,238, plus $4,338 for each dependent child. The upper threshold is the lower threshold multiplied by 1.25.
| Category (2025-26) | No levy (at/below) | Reduced levy range | Full 2% (above) |
|---|---|---|---|
| Singles | $28,011 | $28,012 – $35,013 | $35,013 |
| Single seniors / pensioners (SAPTO) | $44,268 | $44,269 – $55,335 | $55,335 |
| Family (no children) | $47,238 | $47,239 – $59,047.50 | $59,047.50 |
| Family (1 dependent child) | $51,576 | $51,577 – $64,470 | $64,470 |
| Family (2 dependent children) | $55,914 | $55,915 – $69,892.50 | $69,892.50 |
| Family (3 dependent children) | $60,252 | $60,253 – $75,315 | $75,315 |
Note that family thresholds apply to combined family income — for a couple, both partners’ taxable incomes are added together to test against the family thresholds.
Worked Examples: Medicare Levy Calculations
Seeing the formula in action makes it concrete. Here are four realistic scenarios for 2025-26:
Example 1: Single on $30,000 — reduced levy
A single person earning $30,000 sits in the shade-in range, so the 10-cent rule applies: ($30,000 − $28,011) × $0.10 = $1,989 × $0.10 = $198.90 — far below the $600 that a flat 2% of $30,000 would be.
Example 2: Single on $60,000 — full levy
$60,000 is above the $35,013 upper threshold, so the full rate applies: $60,000 × 0.02 = $1,200. (See the full breakdown for a $60,000 salary.)
Example 3: Family of four (two dependent children) on $60,000 combined — reduced levy
The family lower threshold is $55,914 ($47,238 + 2 × $4,338) and the upper threshold is $69,892.50. Combined income of $60,000 falls inside the shade-in range, so: ($60,000 − $55,914) × $0.10 = $4,086 × $0.10 = $408.60 — nearly $800 less than the full 2% of $1,200.
Example 4: Family of four on $80,000 combined — full levy
$80,000 exceeds the $69,892.50 upper threshold: $80,000 × 0.02 = $1,600.
| Scenario | Income tested | Threshold outcome | Medicare levy |
|---|---|---|---|
| Single, $30,000 | $30,000 | Shade-in | $198.90 |
| Single, $60,000 | $60,000 | Above upper threshold | $1,200.00 |
| Family, 2 children, $60,000 combined | $60,000 | Shade-in | $408.60 |
| Family, 2 children, $80,000 combined | $80,000 | Above upper threshold | $1,600.00 |
| Single senior (SAPTO), $50,000 | $50,000 | Shade-in | $573.20 |
Higher thresholds shelter more income: at $50,000 a SAPTO-eligible single pays ($50,000 − $44,268) × $0.10 = $573.20, versus the $1,000 a standard single pays on the same income.
Medicare Levy vs Medicare Levy Surcharge: The Crucial Difference
The surcharge is an additional tax — on top of the 2% levy — designed to encourage higher earners to take out private hospital cover and reduce pressure on the public system.
The surcharge only applies if you (and your spouse, if any) did not hold appropriate private hospital cover for the full financial year. Note two fine points: extras-only cover does not count, and the hospital policy must have an excess no greater than $750 for singles or $1,500 for families to qualify.
Surcharge rates depend on your “income for surcharge purposes” — broader than taxable income, since it adds back reportable fringe benefits, reportable super contributions and net investment losses. The 2025-26 tiers:
| Singles income | Family income | Surcharge rate |
|---|---|---|
| $101,000 or less | $202,000 or less | 0% (no surcharge) |
| $101,001 – $118,000 | $202,001 – $236,000 | 1% |
| $118,001 – $158,000 | $236,001 – $316,000 | 1.25% |
| $158,001 or more | $316,001 or more | 1.5% |
Family income thresholds increase by $1,500 for each dependent child after the first. So a family with two dependent children faces Tier 1 at $203,501–$237,500 instead of the base $202,001–$236,000.
A single person earning $120,000 with no private hospital cover pays the standard 2% levy ($2,400) plus the 1.25% Tier 2 surcharge ($1,500) — $3,900 in total. A basic hospital policy often costs less than the surcharge alone, which is exactly the incentive the system is built around.
Who Has to Pay? Exemptions Explained
Most Australian residents for tax purposes pay the levy subject to the thresholds above. Full or half exemptions exist in specific situations and are claimed on your tax return:
- Foreign residents for the whole year: if you were a foreign resident for tax purposes for the entire 2025-26 financial year, you are exempt from the Medicare levy.
- Not entitled to Medicare benefits: some temporary visa holders who are not eligible for Medicare can claim an exemption.
- Medical exemption: if you qualify for a medical exemption certificate (for example, certain long-term medical conditions), you may be exempt.
- Half exemption: if your circumstances changed during the year — for example, you became entitled to Medicare benefits partway through the year, or you were a foreign resident for only part of the year — you may qualify for a half exemption rather than a full one.
Exemptions must be claimed in your tax return; they are not automatic. If you think you qualify, check the ATO’s Medicare levy exemption guidance before lodging — claiming the wrong exemption category is a common trigger for return adjustments.
How the Levy Affects Your Take-Home Pay
Because the Medicare levy is calculated on taxable income, it directly reduces your take-home pay alongside income tax. Using the 2025-26 resident tax brackets (nil to $18,200; 16% from $18,201–$45,000; 30% from $45,001–$135,000; 37% from $135,001–$190,000; 45% above $190,001), here is what the combined bill looks like for a few typical incomes:
| Taxable income (single) | Income tax | Medicare levy (2%) | Total tax + levy | Take-home |
|---|---|---|---|---|
| $30,000 | $1,888 | $198.90 | $2,086.90 | $27,913.10 |
| $60,000 | $8,787.70 | $1,200.00 | $9,987.70 | $50,012.30 |
| $90,000 | $17,787.70 | $1,800.00 | $19,587.70 | $70,412.30 |
| $130,000 | $29,787.70 | $2,600.00 | $32,387.70 | $97,612.30 |
The income tax figures come straight from the marginal brackets: on $60,000 you pay 16% on the $26,800 between $18,201 and $45,000 ($4,288), plus 30% on the $14,999 between $45,001 and $60,000 ($4,499.70), totalling $8,787.70 before the levy. Figures exclude the Low Income Tax Offset, which can further reduce tax for lower earners.
As you can see, on a $60,000 salary the Medicare levy is about 12% of the total tax bill — significant, but income tax always dominates. To see your own complete picture including super, try the salary breakdowns for a $30,000 salary, a $90,000 salary or a $130,000 salary.
Frequently Asked Questions
Is the Medicare levy 2% for everyone in 2025-26?
The rate is a flat 2% of taxable income, but low earners get relief: at or below the lower threshold ($28,011 for singles in 2025-26) you pay nothing, and between the thresholds the 10-cent shade-in gives a reduced amount. Full-year foreign residents and those not entitled to Medicare benefits are exempt.
What is the Medicare levy low-income threshold for 2025-26?
For singles, no Medicare levy is payable at or below $28,011, with a reduced levy up to $35,013 and the full 2% above. These thresholds increased from 1 July 2025. SAPTO-eligible single seniors have thresholds of $44,268 and $55,335; families start at $47,238 plus $4,338 per dependent child.
How is the reduced Medicare levy (shade-in) calculated?
You pay 10 cents for every dollar above your lower threshold: a single on $30,000 pays 10 cents × ($30,000 − $28,011) = $198.90. The amount rises with income until the upper threshold, where it equals the full 2% — the design guarantees you never pay more than 2% of your income.
Is the Medicare levy surcharge the same as the Medicare levy?
No. The Medicare levy is the standard 2% charge that funds the public system. The Medicare levy surcharge is an extra 1%, 1.25% or 1.5% applied only to higher-income earners (singles above $101,000 in 2025-26) without appropriate private hospital cover. You can pay one, both, or — with low income or the right cover — neither.
Do I pay the Medicare levy if I am not an Australian citizen?
Citizenship is not the test — tax residency is. Australian residents for tax purposes generally pay the levy (subject to thresholds), while foreign residents for the whole financial year are exempt. Some temporary visa holders not entitled to Medicare benefits can also claim an exemption. If your residency status changed during the year, you may qualify for a half exemption.
Does extras-only private health insurance avoid the surcharge?
No. Only hospital cover with an appropriate excess (no more than $750 for singles or $1,500 for families) avoids the surcharge. An extras-only policy — dental, optical, physio — does not count.
Conclusion: Get Your Exact Medicare Levy in Seconds
The Medicare levy is straightforward at its core — 2% of taxable income — but the low-income thresholds, the shade-in formula, family variations, exemptions and the separate surcharge mean the number on your notice of assessment is rarely guessable. The good news is that every part of the calculation is public and mechanical, so there is no reason to estimate when you can compute.
Run your own numbers through the Medicare levy calculator to see your exact 2025-26 liability under the thresholds and shade-in rules above, including whether the surcharge could apply to you. And if you want income tax, levy, super and take-home in one view, the salary pages break it all down — from a $60,000 salary to a $80,000 salary.