Medicare Levy on Payslip Explained
What the Medicare Levy deduction on your payslip means, how it's calculated, 2026 thresholds, the surcharge explained, plus a free calculator — aligned to current ATO Medicare Levy guidance.
Written by Sarah Mitchell
Senior Payroll Compliance Specialist · officedraft
Reviewed by James Nguyen
Registered Tax Agent · 14 years ATO & payroll compliance
Published: Jan 2026
Updated: 1 Jun 2026
If you look at your Australian payslip and see a line labelled Medicare Levy, you're looking at your contribution to Australia's public healthcare system. Every Australian tax resident who earns above a set income threshold pays the Medicare Levy — a standard 2% of taxable income — collected by your employer through the same PAYG withholding system used for income tax.
This guide explains exactly what the Medicare Levy deduction on your payslip means, how it's calculated for 2026, how it differs from income tax (PAYG), when the Medicare Levy Surcharge applies, and what exemptions or reduced rates you might qualify for — with real dollar examples for weekly, fortnightly, and monthly pay.
2%
Standard levy rate
Of taxable income
$26,000
Low-income threshold
Singles — no levy below
1–1.5%
Surcharge rate
Applies if no private cover
2026
ATO-aligned
FY 2025–26 thresholds
What Is the Medicare Levy?
The Medicare Levy is a tax paid by Australian residents to help fund Medicare — Australia's universal public healthcare system. It covers subsidised medical services, hospital treatment in public hospitals, and many pathology and diagnostic tests through the Medicare Benefits Schedule.
The levy is collected by the Australian Taxation Office (ATO) and is a legal obligation for most Australian tax residents. It is separate from your income tax — though it is withheld through the same payroll mechanism by your employer.
Unlike optional deductions such as salary packaging or voluntary super contributions, the Medicare Levy is mandatory. Your employer is required to withhold it from your gross pay and remit it to the ATO. It is reported as a separate figure on your payslip (though some payroll systems include it within the PAYG figure).
Why Medicare Levy Appears on Your Payslip
Your employer withholds Medicare Levy from each pay run under the ATO's PAYG withholding tax tables. Rather than requiring employees to calculate and pay the levy in a single lump sum at tax time, the ATO has employers collect it progressively — the same system used for income tax.
📋 What your payslip Medicare Levy line actually shows:
- The estimated Medicare Levy withheld for that pay period (not your annual liability)
- Calculated from the ATO's weekly/fortnightly withholding tax tables
- Based on your employer's assumption that your current pay will continue for the full year
- Reconciled at tax time against your actual annual income
If your income changes mid-year (e.g. you start part-time), your withholding amount may not perfectly match your actual levy. The difference is adjusted in your annual tax return — you'll either receive a refund or owe additional levy. See the full payroll tax guide for more on the PAYG reconciliation process.
Medicare Levy Rate for 2026
The Medicare Levy rate for the 2025–26 financial year is 2% of taxable income for most Australian residents. This rate has been stable at 2% since 2014 and is not expected to change for 2026.
Source: ATO Medicare Levy Reduction and Exemption. Figures for FY 2025–26. Thresholds include the add-on of $4,027 per dependent child for family status.
How Medicare Levy Is Calculated
The formula is straightforward for most earners. Below are step-by-step calculations for three common pay frequencies:
Medicare Levy vs PAYG Withholding
Your payslip typically shows two main tax deductions — PAYG Withholding and Medicare Levy. Here's exactly how they differ:
Medicare Levy Surcharge Explained
The Medicare Levy Surcharge (MLS) is a separate, additional charge on top of the standard 2% Medicare Levy. It applies only to higher-income earners who do not hold an appropriate private hospital cover policy. The ATO designed the MLS to encourage high earners to use private hospitals, reducing pressure on the public system.
Note: The MLS is not withheld by your employer — it is calculated and assessed at tax time via your individual tax return. The standard 2% Medicare Levy is withheld by your employer; the surcharge is an annual bill from the ATO.
Medicare Levy Thresholds and Exemptions
Not everyone pays the full 2% levy. The ATO provides exemptions and reduced rates for several categories of taxpayers:
Low-income earner exemption
Singles earning below $26,000 pay no Medicare Levy. Families below $43,846 also pay no levy. These thresholds are adjusted each year.
Phase-in / reduced levy
Incomes between $26,000–$32,500 (singles) pay a reduced levy of 10% of the excess above the lower threshold — not the full 2%.
Foreign residents
Foreign residents are generally not entitled to Medicare and may be fully exempt. Check your visa conditions and residency status with the ATO.
Specific medical conditions
People with certain conditions that prevent Medicare benefit entitlement may apply for a full or half Medicare Levy exemption via a Medicare Exemption Certificate.
For official exemption claim forms, see ATO: Medicare Levy reduction and exemption.
Medicare Levy Calculator
Enter your annual income below to calculate your exact Medicare Levy, Medicare Levy Surcharge, PAYG withholding, and net pay — updated for FY 2025–26 using current ATO rates:
This calculator provides estimates based on ATO 2025–26 rates. Figures are for resident individual taxpayers. For complex situations including salary packaging, offsets, or HECS-HELP debt, consult a registered tax agent. Also see our dedicated Medicare Levy Calculator for additional options.
Example Medicare Levy Calculations
Here are three worked examples showing how the Medicare Levy appears across different income levels and pay frequencies:
Medicare Levy — Weekly / Fortnightly / Monthly Table
Reference table for common Australian income levels — single individual, full 2% rate, no private health insurance surcharge:
Based on standard 2% Medicare Levy rate for resident single individuals. Phase-in applies for incomes $26,000–$32,500. Table does not include Medicare Levy Surcharge. For personalised figures use the calculator above.
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Common Medicare Levy Payslip Mistakes
These are the most common errors employers and payroll systems make with Medicare Levy — and what to do if you spot them:
Medicare Levy not showing on payslip at all
Why it happens: Some payroll systems bundle it into the PAYG figure without disclosure. Technically acceptable but non-ideal.
What to do: Ask your payroll officer whether Medicare is included in the PAYG figure or omitted. If omitted and you earn above threshold, it should appear at tax time.
Incorrect Medicare Levy rate applied
Why it happens: System using outdated 1.5% rate instead of current 2%. This affects annual liability.
What to do: Compare your Medicare Levy deduction to 2% of your gross pay. If materially different, flag with payroll immediately.
No Medicare Levy deducted despite earning above threshold
Why it happens: Payroll system error, incorrect tax file declaration, or employer incorrectly applying an exemption.
What to do: Check your TFN declaration form. If you haven't claimed exemption but no levy is being withheld, you'll owe the full amount at tax time.
Medicare Levy Surcharge shown on payslip
Why it happens: The MLS is an annual assessment — it should not appear on individual payslips. If it does, it may be an employer error or misclassification.
What to do: The MLS is assessed by the ATO at tax time — not withheld by employers. Query any payslip line labelled "Medicare Levy Surcharge."
Wrong Medicare Levy for part-year or variable income
Why it happens: Employer calculates levy based on current pay cycle annualised — doesn't account for income changes.
What to do: This is a known system limitation. The actual levy is corrected in your tax return. You may receive a refund or additional bill.
Frequently Asked Questions — Medicare Levy on Payslip
Medicare Levy on Payslip — Summary
The Medicare Levy on your payslip is a mandatory 2% contribution to Australia's public healthcare system, withheld alongside PAYG tax from every pay run. Most employees earning above $26,000 pay the full 2%. Lower earners pay a reduced rate or nothing. Higher earners without private hospital cover may face an additional Medicare Levy Surcharge of 1–1.5% at tax time. Use the calculator above to confirm your exact liability.