My income is low — do I still have to pay the 2% Medicare levy? The 2025–26 thresholds just went up

Most people know the Medicare levy as the flat 2 per cent that comes out on top of their income tax. What fewer people realise is that it has its own set of low-income thresholds — completely separate from the $18,200 tax-free threshold — and if your income sits below them, the levy is reduced or wiped out entirely. Those thresholds were lifted at the 2026–27 Federal Budget, and the new figures apply to the 2025–26 return you are lodging now.

Where the lines fall for 2025–26

For a single person with no dependants, you pay no Medicare levy at all if your taxable income was $28,011 or less (up from $27,222). Between $28,011 and $35,013 you pay a reduced levy that phases in at 10 cents for every dollar above the lower figure — so it climbs gradually rather than jumping straight to the full 2 per cent the moment you cross the line. Above $35,013, the ordinary 2 per cent applies.

Seniors and pensioners who qualify for the Seniors and Pensioners Tax Offset (SAPTO) get a much higher single threshold: nothing up to $44,268, and a reduced levy up to $55,335. A lot of self-funded and part-pension retirees pay more levy than they need to, simply because they never check this line.

Families are assessed on combined taxable income. A couple — or a sole parent — pays no levy if family income was $47,238 or less, and that floor rises by $4,338 for each dependent child. So a family with two children does not start paying until $55,914. The reduction is worked out on family income even if one partner individually earns above the single threshold.

Two things people get wrong

First, the Medicare levy and the Medicare levy surcharge are not the same tax. The levy is the 2 per cent almost everyone pays, with relief at the bottom. The surcharge is an extra 1 per cent to 1.5 per cent that only hits higher earners who do not hold private hospital cover — a different threshold, a different problem. If someone tells you to 'get private cover to avoid the Medicare levy', they have muddled the two.

Second, you do not claim the reduction yourself. There is no box to tick and no form to lodge — the ATO works it out automatically from the income and family details in your return. That is exactly why an accurate return, with your spouse's income and your dependants entered correctly, matters. Get the family details wrong and the reduction can be miscalculated.

What to actually check

If your 2025–26 taxable income landed anywhere near these thresholds — a part-year worker, someone on parental leave, a student, a retiree drawing a modest pension — it is worth confirming the levy on your notice of assessment rather than assuming you owe the full 2 per cent. On a $30,000 income, the difference is real money.

Our take-home pay calculator applies the standard 2 per cent so you can see the ballpark, but the low-income reduction is worked out on your full circumstances. If you are sitting close to a threshold, that is a five-minute conversation worth having before you lodge.