Medicare Levy Exemption in Australia: Who Pays Less or Nothing
Not everyone pays the full 2% Medicare levy in Australia. Find out if you qualify for an exemption or reduction, and how to claim it in your tax return.
By Timothy Hirou GaschereauPublished 10 min read
Most Australians see a Medicare levy line on their tax return and quietly accept it. Fair enough: it funds the public health system, and 2% is not exactly a shock. But a surprising number of people pay it when they do not have to, or pay the full amount when they are entitled to a reduction. This guide is about the Medicare levy exemption and reduction: who qualifies, how much they save, and how to claim it.
One important note first: the Medicare levy and the Medicare Levy Surcharge are two completely different things. The levy is the standard 2% most taxpayers pay. The surcharge is an extra 1% to 1.5% only for higher earners without private hospital cover. This article covers the levy. It is general information only, not tax advice.
🎯 The essential: The Medicare levy is 2% of taxable income for most people. You pay NIL below the low-income threshold and a reduced levy in the phase-in band above it (higher thresholds for seniors/pensioners and families). Full exemptions apply to foreign residents and people not entitled to Medicare (who need a Medicare Entitlement Statement), plus a full/half medical exemption. Claim it in the Medicare section of your tax return. Do not confuse the levy with the surcharge.
What the Medicare levy is
The Medicare levy is a flat 2% of your taxable income, collected through the tax system to help fund Medicare. Earn $60,000 and your levy is $1,200. Most residents pay it automatically, reconciled when you lodge. But “most” is not “all”: some pay a reduced levy, some pay nothing, depending on your income, your tax residency, and whether you were actually entitled to use Medicare during the year.
The low-income reduction and exemption
If your taxable income is low enough, you pay a reduced levy or none at all:
- Below the lower threshold: no Medicare levy at all.
- Between the lower and upper threshold: a reduced levy that phases in gradually, rather than jumping straight to 2%.
- Above the upper threshold: the full 2%.
Higher thresholds apply if you are eligible for the Seniors and Pensioners Tax Offset (SAPTO), and family thresholds rise with each dependent child. The figures are indexed each year (the single lower threshold has historically been around $27,000, illustrative only), so check the ATO for the current numbers. The good news: the low-income reduction is generally applied automatically when you lodge.
Full and half exemption categories
Beyond the low-income reduction, three categories can claim an exemption in your tax return:
| Category | Who it covers | Exemption | What you need |
|---|---|---|---|
| Foreign resident | Foreign residents for tax purposes (all year) | Full | Answer the residency questions |
| Not entitled to Medicare | Certain visa holders ineligible for Medicare | Full (for the ineligible period) | Medicare Entitlement Statement |
| Medical / prescribed person (full) | Blind pensioners, some Defence members with full free treatment, no non-exempt dependants | Full | Answer the Medicare questions |
| Medical / prescribed person (half) | As above, but at least one dependant not exempt | Half | Answer the Medicare questions |
Tax residency is a separate question from visa status: you can be on a visa and still be an Australian tax resident, or vice versa.
The Medicare Entitlement Statement (MES)
If you are claiming an exemption because you were not entitled to Medicare, the Medicare Entitlement Statement is the document that makes it happen. It is issued by Services Australia and confirms the period you were not entitled to Medicare benefits, which the ATO requires as proof. Applications generally open from 1 July each year for the previous financial year (or up to four weeks before you leave Australia). Apply online via myGov, the standalone MES application, or paper form MS015, usually with a copy of your passport photo page and any visa or Home Affairs documents. Keep it safe to support your claim when you lodge.
How to claim the exemption or reduction
Claiming is straightforward. In myTax, the Medicare section asks a series of questions and applies the right treatment based on your answers. The low-income reduction is generally automatic. For a foreign-resident, not-entitled, or prescribed-person exemption, answer the relevant questions and have your supporting documents (such as your MES) ready. Keep everything: the ATO can ask for documents after you lodge.
Levy vs surcharge: don't confuse the two
| Medicare levy | Medicare Levy Surcharge | |
|---|---|---|
| Rate | 2% | 1% to 1.5% extra |
| Who pays | Most taxpayers | Higher earners without private hospital cover |
| Purpose | Funds the public health system | Encourages private hospital cover |
The surcharge is entirely separate, applies only above a higher income threshold, and is about whether you hold private hospital cover. If your tax return gave you a shock, double-check which one you are looking at, our surcharge guide covers that side.
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❓ Frequently asked questions
Who is exempt from the Medicare levy?
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Several groups can be fully or partly exempt. Foreign residents for tax purposes are fully exempt. People not entitled to Medicare (such as certain temporary visa holders) can claim an exemption for the period they were ineligible, if they have a Medicare Entitlement Statement. Some in the medical/prescribed-person category (certain blind pensioners, some Defence members) are also exempt. Low-income earners below the threshold pay no levy, technically a reduction.
What is the low-income Medicare levy threshold?
+
The thresholds are indexed each year, so there is no single permanent figure. As a rough guide, the single lower threshold has historically been around $27,000 (illustrative only). Higher thresholds apply for seniors and pensioners eligible for SAPTO, and for families with dependent children. Check the ATO's Medicare levy reduction page for the current figures before you lodge.
Do foreign residents pay the Medicare levy?
+
No. If you were a foreign resident for Australian tax purposes for the whole income year, you are fully exempt. If you were a foreign resident for only part of the year, you may claim an exemption for that portion. Tax residency is a separate question from visa status, so check your residency with the ATO if unsure.
What is a Medicare Entitlement Statement?
+
A Medicare Entitlement Statement (MES) is an official document from Services Australia confirming the period you were not entitled to Medicare benefits. You need it to support a levy exemption claim if you were ineligible. Apply online via myGov, the standalone MES application, or paper form MS015. Applications generally open from 1 July for the previous financial year.
Is the Medicare levy the same as the Medicare Levy Surcharge?
+
No, completely different. The Medicare levy is a standard 2% most taxpayers pay to fund the public health system. The Medicare Levy Surcharge is an extra 1% to 1.5% that applies only to higher earners who do not hold private hospital cover. If you are trying to reduce a surcharge, see our separate surcharge guide.
How do I claim a Medicare levy exemption?
+
Claim it in the Medicare section of your tax return. In myTax the system asks the relevant questions and guides you based on your answers. The low-income reduction is generally applied automatically. For an exemption as a foreign resident, not entitled to Medicare, or a prescribed person, answer the questions and have your documents (such as your MES) ready. Keep everything in case the ATO asks.
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Sources
This article is general information only, not tax advice. Medicare levy thresholds and exemption rules are set by the ATO and Services Australia and change over time (thresholds are indexed each year). Check the ATO and Services Australia for guidance specific to your situation.
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General information only. This article is educational and does not constitute personal financial advice. It does not account for your circumstances. Consider your own situation and seek advice from a licensed adviser before acting. Read our full disclaimer.
Timothy Hirou Gaschereau
Founder of Snowball Invest, not a financial adviser.
I write about what I'm learning myself, because nobody ever taught us how to take control of our own money. It's a skill, not a mystery, and it's never too late to learn it. The best day to start was yesterday, the second best is today.
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