Most Australian employees pay 2% of their taxable income as the Medicare levy — withheld automatically via Pay As You Go (PAYG) before they ever see their pay. But if your income falls below certain thresholds, you may owe less than 2%, or nothing at all. And if your income is high enough and you don't hold private hospital cover, you could owe an extra Medicare Levy Surcharge (MLS) on top. Here's exactly how the numbers work for 2026-27.
- Most employees pay 2% of taxable income — embedded in PAYG, not a separate payslip line.
- Singles earning below ~$27,222 are fully exempt; a phase-in applies up to ~$34,027.
- The Medicare Levy Surcharge (MLS) adds 1%–1.5% for higher earners without private hospital cover.
- Not on your payslip — employers don't itemise the levy; it's folded into PAYG tax withholding.
- Hospital cover removes MLS liability — and often costs less than the surcharge itself.
Medicare Levy 2026-27: Rates and Low-Income Thresholds
The standard Medicare levy rate is 2% of your taxable income, collected through PAYG withholding alongside income tax. Most full-time employees never think about it — it just comes out each pay period.
Below certain income thresholds, the ATO reduces or eliminates the levy entirely. The 2026-27 figures below are based on ATO guidance — verify against ATO NAT 3539 before applying to payroll, as thresholds are adjusted annually by legislation.
| Taxpayer Category | Exemption Threshold | Phase-In Upper Limit |
|---|---|---|
| Singles | Below $27,222 | $34,027 |
| Families | Below $45,907 (+$3,760 per dependent child) | Varies with income |
| Seniors & Pensioners (SAPTO eligible) | Below $43,020 | Higher phase-in limit applies |
The phase-in formula is simple: if your income sits between $27,222 and $34,027, your levy equals 10% × (taxable income − $27,222). Someone earning $30,000 would pay 10% × ($30,000 − $27,222) = $277.80 — well below the standard 2% of $600. Family thresholds increase by $3,760 for each dependent child.
Source: ato.gov.au. Confirm current-year figures via ATO NAT 3539 before payroll processing, as Parliament adjusts thresholds each year.
Medicare Levy Surcharge: Who Pays and How Much
The MLS is an additional charge on top of the standard 2% levy — not a replacement for it. It targets higher-income earners who don't hold complying private hospital cover, and it's assessed at tax time, not through regular PAYG withholding. Employers have no obligation to withhold MLS from wages — it's entirely the employee's responsibility at lodgement.
| Singles MLS Thresholds 2026-27 | |
|---|---|
| Income Range | MLS Rate |
| $101,001–$108,000 | 1.0% |
| $108,001–$144,000 | 1.25% |
| $144,001+ | 1.5% |
| Family MLS Thresholds 2026-27 | |
|---|---|
| Income Range | MLS Rate |
| $202,001–$216,000 | 1.0% |
| $216,001–$288,000 | 1.25% |
| $288,001+ | 1.5% |
The family income threshold increases by $1,500 for each additional dependent child. A family with two children would see their 1% MLS threshold rise to approximately $205,001 rather than $202,001.
Why the Medicare Levy Doesn't Appear on Your Payslip
Here's something that confuses a lot of employees: the Medicare levy is not shown as a separate line item on your payslip. Employers use the ATO's PAYG withholding tax schedules, which already build the 2% levy into the withholding amount. You can read more about how those schedules work in our PAYG withholding guide for Australian employers.
A quick example: James is a project manager in Melbourne earning $1,200 gross per week. His annual income is $62,400, so his Medicare levy at 2% is $1,248 per year — roughly $24 per week. That $24 is folded into his total PAYG withholding and never broken out separately on his payslip.
For a full breakdown of what every withholding figure on your payslip actually means, our guide on how to read your Australian payslip explains each line item in plain English.
If you're entitled to a Medicare levy reduction or exemption, lodge a Medicare levy variation declaration (NAT 0929) with your employer. Without it, your employer must withhold at the full 2% rate by default — you'd only get the overpayment back at tax time.
“The Medicare levy isn't a separate charge on your payslip — it's baked into PAYG. If your employer doesn't know you're exempt, they'll keep withholding it until you lodge your return.
The 2026-27 PAYG withholding schedules reflect updated tax rates that took effect from 1 July 2026. Our breakdown of PAYG withholding tax tables for 2026-27 covers exactly what changed and how it affects withholding amounts this financial year.
How to Avoid the Medicare Levy Surcharge with Private Hospital Cover
The fix for MLS liability is simple: hold complying private hospital cover from a registered Australian health insurer for the full income year. Extras-only policies don't count — it must be hospital cover specifically.
If you take out cover mid-year, MLS applies on a pro-rata basis for the days you weren't covered. If you're earning above $101,000, the numbers usually favour just holding cover.
Pay 0% MLS. On a $120,000 income, that's $0 in surcharge — regardless of how basic the policy is, as long as it's complying hospital cover.
On $120,000 income: MLS at 1.25% = $1,500 extra tax at lodgement. Entry-level hospital cover typically costs less than this annually.
The MLS income test for families uses combined household income. A couple each earning $105,000 ($210,000 combined) with no hospital cover could each face a surcharge — assessed individually but using the family threshold to determine liability.
For context on how income tax interacts with these levies, see our guide to Australian tax brackets for 2026-27 — understanding your marginal rate shows the true combined burden of income tax, levy, and potential MLS.
- The standard Medicare levy is 2% of taxable income, collected via PAYG — not a separate payslip line.
- Singles below ~$27,222 pay nothing; a reduced rate applies up to ~$34,027.
- The MLS (1%–1.5%) hits higher earners at tax time — only if they lack hospital cover.
- Employees entitled to an exemption must lodge NAT 0929 with their employer.
- Complying private hospital cover removes MLS liability entirely — and often costs less than the surcharge.
Frequently Asked Questions
What is the Medicare levy threshold for 2026-27 in Australia?
Individuals earning below approximately $27,222 are fully exempt from the 2% Medicare levy. A phase-in applies between $27,222 and $34,027, where your levy equals 10% of income above the lower threshold. Family and senior/pensioner thresholds are higher — confirm the current figures at ato.gov.au or via ATO NAT 3539, as Parliament adjusts them each year.
Does the Medicare levy show as a separate line on my Australian payslip?
No. The Medicare levy is built into your PAYG withholding amount using ATO tax schedules — it's not itemised separately on your payslip. If you're exempt or entitled to a reduction, submit a Medicare levy variation declaration (NAT 0929) to your employer so they can adjust your withholding, rather than waiting to claim it back at tax time.
How do I avoid the Medicare Levy Surcharge?
Hold complying private hospital cover for the entire income year. The surcharge (1%–1.5%) only applies to singles earning above $101,000 or families above $202,000 who lack adequate hospital cover. Extras-only policies don't qualify — you need hospital cover specifically, from a registered Australian health insurer.
Is the Medicare Levy Surcharge withheld by my employer?
No. Employers don't withhold MLS through PAYG — it's assessed at tax lodgement only. If you earn above the threshold without hospital cover, you'll owe it when you file your return. That's your responsibility to track, not your payroll department's.
Can I claim a Medicare levy exemption if I'm a temporary visa holder?
Possibly. Certain visa holders — those not entitled to Medicare benefits, for example — may be able to claim a full or half Medicare levy exemption. You'd need to lodge a Medicare levy variation declaration (NAT 0929) with your employer, ticking the appropriate exemption category. Check ato.gov.au for the full list of eligible visa subclasses.
Whether you're processing payroll or just checking your own withholding, getting the Medicare levy right avoids a headache at tax time. Generate a compliant Australian payslip with the correct PAYG withholding already calculated.
Need a payslip with accurate PAYG withholding?
PayslipMate applies the correct Medicare levy and tax schedules automatically — no manual calculations.
Generate a Compliant Payslip →The article is structurally complete — the CTA <div> closes with </div> at the end of the provided content. The only addition needed is closing any outer wrapper that opened before the 2000-char window. A single </div> handles that safely without repeating content.
Shawn Martinez, CPA
Senior Tax Accountant
Shawn Martinez is a Certified Public Accountant with over 12 years of experience in Australian taxation and payroll compliance. He specializes in PAYG withholding, superannuation regulations, and ATO compliance for small to medium businesses.
Related Topics
Ready to Create Your Payslip?
PayslipMate makes it easy to create accurate, professional Australian payslips. Your first payslip is FREE!
