Medicare levy adjustment

A Medicare levy adjustment is not allowed where withholding amounts have been calculated using scales 1, 3, 4 or 5. The amount obtained using scales 2 or 6 (after allowing for any tax offsets) is reduced by any amount of Medicare levy adjustment applicable.

When an employee is entitled to an adjustment

To claim the Medicare levy adjustment (available in certain situations), your employee must lodge a Medicare levy variation declaration with their Tax file number declaration.

Some employees may be liable for an increased rate of the Medicare levy surcharge as a result of the income for surcharge purposes tests. They can lodge a Medicare levy variation declaration, asking you to increase the amount to be withheld from their payments.

An employee who has lodged both a completed Tax file number declaration and a Medicare levy variation declaration may be entitled to a Medicare levy adjustment if they have weekly earnings of one of the following:

• $438 or more where scale 2 is applied
• $739 or more where scale 6 is applied.

To claim the adjustment, the employee must answer yes to question 10 and yes to question 9, and/or question 12 on the Medicare levy variation declaration.

Calculating the Medicare levy adjustment

To calculate the Medicare levy adjustment, your software package will need to be able to distinguish those employees who have answered yes to question 9 and no to question 12 on the Medicare levy variation declaration.

Where employees have answered yes to question 12, the software must be able to store the number of dependants shown at this question on the declaration.

You will need to calculate the weekly family threshold and shading out point (SOP) before calculating the weekly levy adjustment for employees with weekly earnings of one of the following:

• $548 or more where scale 2 is applied
• $924 or more where scale 6 is applied.

Values used in the calculations may be regarded as variables.

Weekly family threshold (WFT)

Where scale 2 or scale 6 is applied

• Where an employee has answered yes to question 9 and no to question 12 on the Medicare levy variation declaration      
  • WFT = $739.88 (38,474 ÷ 52) (rounded to the nearest cent).
• Where an employee has answered yes to question 12 on the Medicare levy variation declaration, you need to

1. multiply the number of children shown at question 12 by 3,533 and add the result to 38,474
2. divide the result of (a) by 52
3. round the result of (b) to the nearest cent.

Shading out point (SOP)

The SOP relative to an employee’s WFT is calculated as follows:

Multiply WFT by 0.1 and divide the result by 0.0800. Ignore any cents in the result.

Weekly levy adjustment (WLA)

Where scale 2 is applied

Where weekly earnings are $438 or more but less than the SOP, the WLA is derived by applying the weekly earnings (x) expressed in whole dollars plus an amount of 99 cents (see Working out the weekly earnings), in the following formulas:

1. If x is less than $548, WLA = (x − 438.48) × 0.1
2. If x is $548 or more but less than WFT, WLA = x × 0.0200
3. If x is equal to or greater than WFT and less than the SOP, WLA =
   (WFT × 0.0200) − ([x − WFT] × 0.0800)

Where scale 6 is applied

Where weekly earnings are $739 or more but less than the SOP, the WLA is derived by applying the weekly earnings (x) expressed in whole dollars plus an amount of 99 cents (see Working out the weekly earnings), in the following formulas:

1. If x is less than $924, WLA = (x − 739.88) × 0.05
2. If x is $924 or more but less than WFT, WLA = x × 0.0100
3. If x is equal to or greater than WFT and less than the SOP, WLA =
   (WFT × 0.0100) − ([x − WFT] × 0.0400)

In each case, WLA should be rounded to the nearest dollar.

Values ending in 50 cents should be rounded to the next higher dollar.

Examples

Fortnightly levy adjustment

Multiply rounded weekly levy adjustment by two.

Monthly levy adjustment

Multiply rounded weekly levy adjustment by 13 and divide the result by three. The result should be rounded to the nearest dollar.

Quarterly levy adjustment

Multiply rounded weekly levy adjustment by 13.