For most taxpayers in Australia, the Medicare levy is 2% of their taxable income.
The Medicare levy surcharge is a separate levy from the Medicare Levy. It applies to taxpayers on a higher income who don’t have private health cover.
The most used way to avoid the Medicare Levy Surcharge in Australia is by taking out the required private health insurance policy and it must include hospital cover.
The formula to calculate Medicare Levy is very simple: the Medicare levy is 2% of a person’s taxable income.
The Medicare levy is collected from employees in the same way income tax is collected. Generally, the pay as you go (PAYG) amount that an employer withholds from a salary or wages includes an amount to cover the Medicare levy.
The Australian Taxation Office (ATO) does the calculations on the actual amount owed when an income tax return is lodged, but usually, there will not be a big difference between the amount withheld by the employer and the calculation done by the Australian Tax Authority.
Medicare Levy Calculator: You can follow the link to use the Medicare levy calculator to work out the actual amount you are supposed to pay as a Medicare levy.
The following is a real example of how Medicare Levy is Calculated
Matthew earns an income of $76,000 annually. He has $1,000 of allowable deductions.
Matthew is single and doesn’t have any dependents. Matthew isn’t eligible for the Seniors and pensioners tax offset (SAPTO) and isn’t eligible for any Medicare levy exemptions or reductions.
Matthew will pay a Medicare levy of 2% of his taxable income.
Matthew works out his taxable income as:
Assessable income − allowable deductions = taxable income
$76,000 − $1,000 = $75,000
The amount of Medicare levy Matthew pays is:
$75,000 × 0.02 = $1,500
The Medicare levy is automatically calculated when Matthew completes his tax return.