Complete guide to the Medicare Levy Surcharge in Australia. Income thresholds for 2025-26, how much it costs versus private health insurance, and how to avoid paying it.
The Medicare Levy Surcharge (MLS) is an additional tax imposed on higher-income Australians who do not hold an appropriate level of private hospital insurance. It was introduced to encourage higher earners to take out private cover, reducing demand on the public hospital system.
The MLS is separate from — and in addition to — the standard 2% Medicare levy that most taxpayers pay. If you are a high-income earner without private hospital cover, you could be paying both the standard 2% levy and the MLS of up to 1.5% on top.
Calculate both your standard Medicare levy and Medicare Levy Surcharge based on your income and private health insurance status.
Open Medicare Levy Calculator →The MLS applies on a sliding scale based on your income for MLS purposes. The thresholds differ for singles and families/couples.
| Income Threshold | MLS Rate |
|---|---|
| $0 – $97,000 | 0% (no surcharge) |
| $97,001 – $113,000 | 1.0% |
| $113,001 – $151,000 | 1.25% |
| $151,001 and above | 1.5% |
| Combined Income Threshold | MLS Rate |
|---|---|
| $0 – $194,000 | 0% (no surcharge) |
| $194,001 – $226,000 | 1.0% |
| $226,001 – $302,000 | 1.25% |
| $302,001 and above | 1.5% |
Family thresholds increase by $1,500 for each dependent child after the first. Thresholds are indexed periodically — always check ato.gov.au for current figures.
| Standard Medicare Levy | Medicare Levy Surcharge | |
|---|---|---|
| Who pays | Most Australian residents | Higher-income earners only |
| Rate | 2% of taxable income | 1% – 1.5% of income for MLS purposes |
| Can you avoid it? | Only with specific exemptions (low income, medical exemption) | Yes — by holding eligible private hospital cover |
| Purpose | Funds the public Medicare system | Encourages take-up of private health insurance |
There is one straightforward way to avoid the MLS entirely: hold an appropriate level of private hospital cover for the entire income year (or the relevant portion of it, with the surcharge applying proportionally for any days without cover).
To avoid the MLS, your private health insurance policy must:
For many people in the lower MLS income brackets, the cost of basic private hospital cover is similar to or cheaper than the surcharge itself — making private cover the financially sensible choice, independent of any health benefits.
| Scenario | Annual Cost |
|---|---|
| Pay the MLS (1.0% of $100,000) | $1,000 |
| Basic hospital cover (typical premium) | $900 – $1,400 |
In this example, a basic hospital policy may cost roughly the same as the surcharge — but you receive actual health insurance benefits (emergency cover, choice of doctor in some cases, shorter waiting periods) instead of simply paying a tax with no direct benefit.
| Scenario | Annual Cost |
|---|---|
| Pay the MLS (1.25% of $250,000) | $3,125 |
| Basic hospital cover for two (typical combined premium) | $2,200 – $3,200 |
Your income for MLS purposes is not simply your taxable income. It is calculated as:
Taxable income + reportable fringe benefits + total net investment losses + reportable super contributions + exempt foreign employment income
This broader definition catches some people by surprise. For example, salary sacrificing into super reduces your taxable income but reportable employer super contributions are added back for MLS purposes, meaning salary sacrifice alone won't help you dodge the surcharge if you're near the threshold.
Enter your income and private health insurance status to calculate exactly what you owe.
Medicare Levy Calculator →This is the mechanic that determines whether taking out cover partway through the year helps you, and it is rarely explained.
The Medicare levy surcharge is calculated on the number of days in the income year during which you did not hold an appropriate level of private patient hospital cover. It is not an all-or-nothing annual charge.
Taking out hospital cover on 1 April therefore does not remove the surcharge for the preceding nine months. It removes it for the remaining days only. Conversely, cancelling cover in May exposes you to the surcharge for those final weeks.
These two are constantly confused, and they work in opposite directions.
The Medicare levy surcharge is a tax, collected by the ATO, that applies to higher-income earners without hospital cover. It applies each year you are above the threshold and uninsured.
The Lifetime Health Cover loading is a premium loading applied by health insurers to people who take out hospital cover for the first time after a certain age. It increases with each year of delay, is applied on top of the base premium, and generally continues for a number of continuous years of cover before being removed.
The practical consequence is that delaying cover can cost you twice — the surcharge in the years you were uninsured and above the threshold, and a permanently higher premium once you do take out cover, for a sustained period afterwards.
The hospital policy must also have an excess at or below the maximum permitted level. A high-excess policy purchased for its low premium may not qualify, leaving you paying both the premium and the surcharge. Confirm with the insurer that the specific policy is compliant for surcharge purposes.
Overseas visitor health cover and overseas student health cover generally do not exempt you either, which catches many temporary residents.
Income for surcharge purposes is not the same figure as your taxable income. It generally includes taxable income plus reportable fringe benefits, reportable employer superannuation contributions, personal superannuation contributions you claim as a deduction, and certain investment losses added back.
This is why people are surprised. Salary sacrificing into super reduces taxable income but generally does not reduce income for surcharge purposes, because the sacrificed amount is added back in.
For families, the threshold is higher and increases with each dependent child after the first. Whether the family threshold applies depends on your circumstances at the relevant time — including whether you had a spouse for part of the year — and the family income is the combined income of both partners.
The Medicare levy surcharge is charged per day you were uninsured while above the income threshold, and the income tested is broader than your taxable income. Only compliant private patient hospital cover exempts you — extras cover does not, and neither does a policy with too high an excess.
Whether hospital cover is worth buying purely to avoid the surcharge is an arithmetic question, and the answer depends on your income, the premium available to you, and how much of the year remains. Factor Lifetime Health Cover loading into any decision to delay.
This page provides general information only and is not financial or tax advice. Thresholds, rates, and excess limits are indexed and change — verify current figures with the ATO and confirm policy compliance with your insurer.