Medicare Levy and Income Tax in Australia: Thresholds, Reductions and Calculator Limits

Short answer

The Medicare levy is separate from ordinary income tax. Most Australian residents pay a Medicare levy of 2% of taxable income, but low-income thresholds can reduce the levy to nil or phase it in gradually.

Use the Income Tax Calculator to estimate salary after tax for 2025-26 or 2026-27. The calculator models the single/no-dependants Medicare levy threshold. It is not a tax ruling and does not cover every family, dependant, exemption or surcharge scenario.

Why the Medicare levy changes take-home pay

Australian resident tax brackets are only part of the take-home pay calculation. A resident can have:

• income tax based on progressive resident tax brackets
• Medicare levy, usually up to 2% of taxable income
• HELP or other study loan repayments, if repayment income is above the relevant threshold
• superannuation paid by the employer on top of salary, not deducted from take-home pay

Foreign residents and working holiday makers generally do not pay the Medicare levy, but they also do not receive the same tax-free threshold settings as Australian residents.

Low-income Medicare levy reduction

The Medicare levy is not simply 2% from the first dollar for every resident.

For a single resident with no dependants, the ATO publishes a low-income threshold. At or below that threshold, the Medicare levy is nil. Above that threshold, the levy phases in until it reaches the ordinary 2% calculation.

That is why two people with similar income tax can have different after-tax results once the Medicare levy is included.

2025-26 and 2026-27 income years

The income year matters.

For 2025-26, the resident tax brackets use the Stage 3 settings that apply from 1 July 2024. For 2026-27, the ATO PAYG withholding schedules apply from 1 July 2026 and include the legislated reduction of the resident rate from 16% to 15% for the income slice from $18,201 to $45,000.

The Medicare levy low-income thresholds also change between years. The calculator uses the selected income year so the threshold set matches the tax year being estimated.

HELP and study loan repayments

HELP and other study loan repayments are separate from both income tax and the Medicare levy.

For 2025-26, compulsory repayments begin once repayment income exceeds $67,000. For 2026-27, Study Assist lists the minimum repayment income as $69,528.

The current system uses marginal repayment bands. In practical terms, the repayment is based on dollars above the threshold rather than applying an old whole-income percentage table from the first threshold.

What the calculator does not model

The Income Tax Calculator is deliberately conservative. It does not model:

• Medicare levy family thresholds
• dependant child adjustments
• Seniors and Pensioners Tax Offset interactions
• full or half Medicare levy exemption declarations
• Medicare levy surcharge for private health insurance purposes
• tax offsets, deductions, salary sacrifice or reportable fringe benefits
• spouse income or adjusted taxable income rules

Those settings can materially change the result. If any of them apply, use the calculator as a rough estimate only and check the ATO guidance or a registered tax agent.

Worked example

Assume a single Australian resident earns $85,000 and has no HELP debt.

The calculator:

1. applies the selected resident income tax brackets
2. adds the Medicare levy using the selected year's single low-income threshold rules
3. excludes HELP if the toggle is off
4. shows employer superannuation separately because it is not deducted from take-home pay

If the same person has a HELP debt, the calculator adds the compulsory repayment estimate using the selected year's HELP repayment thresholds.

Bottom line

Salary-after-tax calculators are most useful when the assumptions are visible. The key checks are income year, residency status, HELP debt, and whether your Medicare levy situation is a simple single/no-dependants case or something more complex.

Start with the Income Tax Calculator, then use the result as general information rather than tax advice.

Sources: Australian Taxation Office individual tax rates, ATO PAYG withholding schedules applying from 1 July 2026, ATO Medicare levy reduction guidance, ATO study and training support loan repayment thresholds, and Study Assist loan repayment guidance. General information only; not tax, financial or legal advice.