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Medicare levy change: 1.2 million Aussies to get extra tax boost

The Medicare levy low-income thresholds will be increased for singles, families, seniors and pensioners.

Millions of Aussies will be able to avoid or pay a lower Medicare levy under a major change announced by the government.

The government introduced new laws to parliament this week to increase the income thresholds at which the 2 per cent Medicare levy applies to taxpayers. The thresholds would be increased by 7.1 per cent, in line with inflation, and would apply to singles, families, seniors and pensioners on low incomes.

The changes would mean a single earning up to $26,000 would not have to pay the Medicare levy, up from the previous threshold of $24,276.

Medicare
The government is set to raise the Medicare levy low income threshold. (Source: AAP/Getty)

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Treasurer Jim Chalmers said changes were another part of broader tax relief for Australians on “modest incomes” to help with the cost of living.

"It will ensure people on lower incomes continue to pay less or are exempt from the Medicare levy," Chalmers said. "It means 1.2 million Australians get to keep a bit more of what they earn."

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What is the Medicare levy?

The Medicare levy is 2 per cent of your taxable income. You pay the levy on top of the tax you pay on your taxable income.

For example, someone on the median annual salary of $67,600 would pay $1,352 in Medicare levy.

The Medicare levy helps to fund some of the costs of Australia’s public health system.

Who is exempt from paying the Medicare levy?

Certain taxpayers are exempt from paying the Medicare levy, or can get a reduction on the amount payable.

Under the current rules, single people who earn below $24,276 do not have to pay the levy. After that, the levy increases gradually, with the full amount paid by anyone earning over $30,345.

There are also exemptions for people who meet certain criteria, including being a foreign resident temporarily working in Australia, not being eligible for Medicare, and people with certain medical requirements.

What is changing?

The government will increase the Medicare levy low-income thresholds by 7.1 per cent for singles, families, seniors and pensions, in line with inflation.

The increase means those with a taxable income of up to $26,000 will not be liable for the Medicare levy. The full 2 per cent levy will be payable by anyone earning $32,500 or more.

Seniors and pensioners will be able to earn up to $41,089 before the levy kicks in. The full 2 per cent levy will be payable when earnings reach $51,361.

Families will be able to earn up to $43,486, with the full levy payable at $54,807. Families with more children and those eligible for the seniors and pensioners tax offset will have higher thresholds.

How much better off will I be?

Under the changes, it’s estimated a single person earning $30,000 will receive $172.40 in extra tax relief each year. Single pensioners would be up to $272.40 better off, while families would save up to $344.10.

The changes mean 1.2 million low-income earners will either remain exempt from paying the levy, or will pay less in tax.

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