Medicare Levy Reduction
A reduction or exemption from the Medicare levy for low-income earners, certain pensioners, and specific categories of people.
The Medicare levy reduction provides partial or full relief from the 2% Medicare levy for low-income earners. For 2026-27, singles with taxable income at or below $28,011 pay no Medicare levy. The levy phases in at 10 cents per dollar of income above $28,011, reaching the full 2% rate at $35,013. Family thresholds are higher: $47,238 for couples (plus $4,338 per dependent child).
Full exemptions from the Medicare levy (not just reductions) are available to foreign residents who are not eligible for Medicare benefits, people who were in Australia on certain temporary visas, and those who held a valid Medicare Levy Exemption Certification during the year. Half-year exemptions apply if you were a resident for only part of the year.
To claim a reduction or exemption, you complete the relevant section of your tax return. If you're exempt for the full year, you answer "no" to the Medicare levy questions. The ATO pre-fills some of this information, but you should check it against your actual circumstances. Note that the levy reduction is separate from the Medicare Levy Surcharge — you can be exempt from the standard levy but still liable for MLS if your income exceeds the surcharge thresholds and you don't have private hospital cover.
How it works
The Medicare levy reduction scales the standard 2% levy down to zero for taxpayers below a low-income threshold, then phases it back in gradually rather than snapping straight to the full rate. Once taxable income clears the threshold, the levy phases in at 10 cents for every dollar above it, reaching the full 2% rate at a slightly higher income point — so there's a narrow band where you pay some levy, just less than 2%. Separate from the reduction, a full exemption is available to specific categories of people who are not eligible to access Medicare at all, such as certain foreign residents and holders of a Medicare Levy Exemption Certification, regardless of their income level.
You don't apply for the reduction separately — it's calculated automatically from your taxable income when your tax return is assessed, and the ATO's prefill data usually already reflects income reported by employers. A full exemption, on the other hand, requires you to answer the Medicare levy questions on your tax return accurately, typically stating you were exempt for all or part of the year and the category that applies. If you were a resident for only part of the year, you may be entitled to a half-year exemption, calculated proportionally against the number of days you were not a Medicare-eligible resident.
The reduction and the exemption are easy to conflate with the Medicare Levy Surcharge, but they operate on opposite ends of the income scale and answer different questions — the reduction is about whether your income is low enough to pay less than 2%, while the surcharge is about whether your income is high enough, combined with not holding hospital cover, to pay extra on top. It's entirely possible to be fully exempt from the standard levy on eligibility grounds while a different, broader measure of income still exposes you to the surcharge — the two rules don't cancel each other out, and both need to be checked independently each year.
Example: partial reduction on a $30,000 income
A single taxpayer with taxable income of $30,000 sits just above the 2026-27 low-income threshold of $28,011, inside the shade-in range where the levy phases in at 10 cents per dollar.
The levy on the amount above the threshold is 10% of ($30,000 − $28,011) = 10% × $1,989 ≈ $199, considerably less than the $600 a straight 2% calculation on $30,000 would produce, because the reduction tapers the levy in gradually rather than applying the full rate immediately.
Related Terms
Medicare Levy
A 2% levy on taxable income to help fund Australia's public healthcare system, Medicare.
Medicare Levy Surcharge (MLS)
An additional 1%–1.5% surcharge on higher-income earners who don't hold private hospital insurance.
Income Tax
Tax levied by the federal government on your taxable income, calculated using progressive tax brackets.
Tax-Free Threshold
The first $18,200 of annual income that is not subject to income tax for Australian residents.