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. The employee claims it by completing a Medicare levy variation declaration (NAT 0929) and giving it to you, either on the paper form or as a summary from ATO online services. The ATO's exemption categories are certain medical conditions, foreign residents, and people who are not entitled to Medicare benefits (shown on a Medicare Entitlement Statement). Whether the exemption is full or half depends on the employee's dependants. 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 - no exemption applies (default for most employees).
   • HALF - the employee has claimed a half exemption on their Medicare levy variation declaration.
   • FULL - the employee has claimed a full exemption on their Medicare levy variation declaration.
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? - tick this if the employee's declaration includes a spouse.
   • Number of dependant children - enter the number of dependant children as declared.
3. Click Save Changes to apply the setting.

When to use each option

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

Only apply an exemption once the employee has given you a completed Medicare levy variation declaration (NAT 0929), not on a verbal request. Don't send the declaration to the ATO. File it securely, and if the employee gives you a new one or leaves, keep it for the current and following financial year.