How Do I Set A Medicare Levy Exemption For An Employee?

Some employees are entitled to a full or half exemption from the Medicare levy. This applies when the ATO has issued a Medicare levy variation declaration (NAT 0929) granting an exemption ÔÇö for example, for residents of Norfolk Island, low-income earners below the Medicare levy threshold with a medical certificate, or employees who meet the ATO's dependant family criteria for a reduced levy. Set the exemption in Lightning Payroll so that the correct withholding scale is applied to each pay.

In the desktop app

Open the employee record, go to Employees >> Tax Rates >> Medicare Levy Exemption.

1. Set Medicare Levy Exemption: to one of the following:
   • NONE ÔÇö no exemption applies (default for most employees).
   • HALF ÔÇö the employee has been granted a half exemption from the Medicare levy.
   • FULL ÔÇö the employee has been granted a full exemption from the Medicare levy.
2. If you select HALF or FULL, the Has Spouse? checkbox and Number of dependent children: field become available. Enter the details as declared on the employee's Medicare levy variation declaration.
3. Save the employee record. Lightning Payroll will apply the appropriate ATO withholding scale to future pays.

In the online (web/mobile) app

Select the employee, then navigate to Employees >> Tax Rates >> Medicare Levy Exemption.

1. Use the Medicare Levy Exemption Level dropdown to select NONE, HALF, or FULL.
2. If HALF or FULL is selected, two additional fields appear:
   • Has Spouse? ÔÇö tick this if the employee's declaration includes a spouse.
   • Number of dependant children ÔÇö enter the number of dependant children as declared.
3. Click Save Changes to apply the setting.

When to use each option

• NONE ÔÇö use for all standard employees. The Medicare levy (currently 2% of taxable income) is included in their normal PAYG withholding.
• HALF ÔÇö use when the ATO has issued a half-exemption variation. The employee's withholding is calculated on Scale 6, which accounts for a reduced Medicare levy.
• FULL ÔÇö use when the ATO has issued a full exemption. The employee's withholding is calculated on Scale 5, which excludes the Medicare levy entirely.

Always obtain and retain the signed Medicare levy variation declaration (NAT 0929) from the employee before applying an exemption. Do not apply an exemption based solely on an employee's request ÔÇö the ATO must have issued the variation first.