Medicare Levy Low-Income Thresholds Raised 2.9% — Retroactive to 1 July 2025
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Primary tax-year context: 2025-26
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In Budget 2026, the Government lifted all four Medicare levy low-income thresholds by 2.9%, applying retroactively to the start of the 2025-26 income year (1 July 2025). The uplift is a routine cost-of-living indexation but worth knowing about because it changes the 2025-26 tax return outcome for households just above the old thresholds — including some who may have already lodged.
Treasury estimates the change reduces receipts by $450 million over five years from 2025-26.
The new threshold table
| Category | Old (2024-25) | New (2025-26 onward) | Change |
|---|---|---|---|
| Single | $27,222 | $28,011 | +$789 (+2.9%) |
| Family | $45,907 | $47,238 | +$1,331 (+2.9%) |
| Single — senior or pensioner | $43,020 | $44,268 | +$1,248 (+2.9%) |
| Family — seniors or pensioners | $59,886 | $61,623 | +$1,737 (+2.9%) |
| Per dependant child or student | $4,216 | $4,338 | +$122 (+2.9%) |
The family thresholds increase by the per-dependant amount for each additional dependant child or student.
How the low-income threshold works
The Medicare levy is normally 2% of taxable income. The low-income threshold exempts you from paying the levy if your taxable income is at or below the threshold, with a shading-in range above it (where the levy phases in at 10 cents per dollar above the threshold until the full 2% rate is reached).
| Status | Phase-in start | Full 2% applies from |
|---|---|---|
| Single | $28,011 | $35,014 (≈ threshold × 1.25) |
| Family | $47,238 (+$4,338/dep) | $59,047 (+$5,422/dep) |
| Single senior/pensioner | $44,268 | $55,335 |
| Family senior/pensioner | $61,623 (+$4,338/dep) | $77,029 (+$5,422/dep) |
If your taxable income falls within the phase-in zone, you pay a reduced Medicare levy of 10% × (taxable income − threshold). Above the upper bound, the full 2% applies.
Worked example — Single retiree near the senior threshold
Margaret is 67 (Senior Australians Pensioner Tax Offset eligible). Her 2025-26 taxable income is $43,800 from a small superannuation income stream plus part-time work.
| Calculation | Under old threshold ($43,020) | Under new threshold ($44,268) |
|---|---|---|
| Taxable income | $43,800 | $43,800 |
| Above threshold? | Yes — phase-in applies | No — full exemption |
| Medicare levy | 10% × ($43,800 − $43,020) = $78 | $0 |
Margaret saves $78 in 2025-26 thanks to the retroactive uplift.
Worked example — Family with two dependants
Tom and Aisha are both working. Their family income is $50,500 with two school-age dependants in 2025-26.
| Calculation | Under old thresholds | Under new thresholds |
|---|---|---|
| Family threshold | $45,907 + 2 × $4,216 = $54,339 | $47,238 + 2 × $4,338 = $55,914 |
| Family income | $50,500 | $50,500 |
| Above threshold? | No — full exemption | No — full exemption |
| Medicare levy | $0 | $0 |
Same outcome — the uplift mainly benefits households closer to the upper edge of the threshold.
What this means if you’ve already lodged 2025-26
Most 2025-26 returns won’t be lodged until July 2026 or later — that’s still in the future when Budget 2026 was handed down on 12 May 2026. But for early lodgers (PAYG taxpayers who lodged a return that overlaps with the 2025-26 income year):
- If you were assessed under the old threshold and your taxable income fell between the old and new threshold (or in the old phase-in zone), the ATO will issue an automatic adjustment to your assessment. No action required.
- If you were not eligible for low-income relief under either threshold, no change applies.
What’s NOT changing
- Medicare levy rate — remains at 2% of taxable income.
- Medicare Levy Surcharge (MLS) thresholds — separate measure, indexed by the ATO; not adjusted in this Budget. Singles MLS thresholds remained at $101,000 / $118,000 / $158,000 for 2025-26; the ATO will publish 2026-27 indexed values separately.
- Private health insurance rebate tiers — unchanged in Budget 2026.
- SAPTO (Seniors and Pensioners Tax Offset) — unchanged; continues to combine with the seniors low-income Medicare levy threshold to provide full exemption for low-income retirees.
Who benefits most
The 2.9% uplift is small in dollar terms but matters disproportionately for:
- Seniors and pensioners with modest super pensions (the higher senior single threshold of $44,268 captures more low-income retirees).
- Single parents receiving FTB Part A — the family threshold lift means fewer phase-in zone surprises at tax time.
- Part-time and casual workers whose annual taxable income sits just above the old single threshold of $27,222.
Roughly 3.4 million Australians are estimated to fall within or just above the low-income shading-in zone in any given year, though the marginal benefit per person is in the $50–$200 range.
Calculators
- Medicare Levy & MLS Calculator — full Medicare levy with low-income threshold + MLS surcharge in one place.
- Medicare Levy Thresholds 2025-26 — reference page with the full table (already updated to new values).
- Income Tax Calculator — see how the uplift flows into your 2025-26 net tax.
Sources
- Treasury Budget Paper No. 2, Personal Income Tax – increasing the Medicare levy low-income thresholds (12 May 2026), p13
- Australian Taxation Office, Medicare levy reduction for low-income earners (current guidance — updated post-Budget)