Health Part 5: Medicare Levy

Part 5: The tax side of Health – Medicare Levy

The money government puts into health is funded by tax collected.  But as mentioned before, the government doesn’t pay as much when you use the private system, so they would prefer the private system be used more than the public.


For this reason the government has set up incentives for having private health insurance and keeping it, and some measures to help people who have large medical expenses.


Medicare Levy – 1.5% of your taxable income

The Medicare levy is what people pay to help the government fund the public healthcare system. Usually it is 1.5% of your taxable income, however low earners (particularly families and senior Australians), might not pay medicare levy (or may pay a lower percentage).

A lot of people wouldn’t be very interested in how it is calculated (for most I imagine it is just a figure when you receive your tax assessment), however I have included some information below.


Low earners – may not pay Medicare

In 2012 (and the rates are often indexed slightly to increase each year) if you earn less than about $19,404 (2012 “lower threshold”) – you don’t pay Medicare levy.


Calculating reduced Medicare Levy

If you earn between the lower threshold and the upper threshold (2012 upper threshold was $22,828) – you will 10% of the excess, but after the upper threshold the normal 1.5% Medicare levy is payable (based on taxable income). For example if you earned $21,000 in you would pay $21,000-19,404 = 1,596 x 10% = 159.60 medicare levy (which would be 0.76% of your income rather than the full 1.5%)


Low earning spouses may pay medicare

If your combined income (husband and wife) is above $32,743 (2012 year) , you will pay Medicare levy if your taxable income is above the lower threshold.


Note that the Medicare thresholds increase per child you have ($3,007 per child 2012 year), and are also higher for senior Australians eligible for the Senior Australians Tax Offset, so the above is a guide only.


Why I think Medicare levy (and surcharge) are an OK way of raising health funds

While I’m sure there are better health systems in the world than Australia, I do like how the medicare levy (and surcharge) operate being that: 

  1. Medicare levy is not charged to low earners
  2. The rich pay more levy

If you earn $100k – you would pay $1,500 Medicare levy. But if you earn $1m – you would pay $15,000 Medicare levy. So clearly it is the CEOs and other high earning individuals (like doctors, barristers and professionals) that pay the most Medicare levy.

So the next time you see the newspaper complaining about the millions paid to CEOs – remember that 1.5% of their taxable income probably helped pay for your medical bills.


Have a look at the following article for more in-depth information about medicare levy thresholds.


Posted in Health, Tax

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