Evidence-backed. Sourced from the ATO, Private Healthcare Australia, Compare the Market, NIB and independent tax advisers. General information only — not financial or medical advice. Medicare levy rules are updated each year. Consult a registered tax agent for advice on your specific situation. Last updated: June 2026.
⚡ Key Takeaways
- The Medicare Levy (2% of taxable income) and the Medicare Levy Surcharge (MLS: 1–1.5% extra) are two completely separate charges — most Australians pay the first but only higher earners are exposed to the second. [1][2]
- For 2025-26, the MLS income threshold for singles is $101,000 (raised from $90,000 a decade ago). Above this, if you have no qualifying private hospital cover, you pay the surcharge on top of the levy. [3]
- MLS income is broader than taxable income — it includes reportable fringe benefits, reportable employer super contributions, and total net investment losses. Getting a big bonus, salary packaging, or extra super contributions can push you over the threshold unexpectedly. [1][3]
- To avoid the MLS, you need qualifying private hospital cover — from a registered Australian insurer, with a hospital excess not exceeding $750 for singles or $1,500 for families. Extras-only, ambulance-only, overseas travel, and high-excess policies do NOT qualify. [4][5]
- At $120,000 income with no cover, your MLS is $1,200. A basic compliant hospital policy often costs $800–$1,100 annually — meaning the policy pays for itself and you also get hospital coverage. The maths only works if you choose the right type of cover. [7][6]
- The Medicare Levy phases in at low incomes — singles earning below $27,222 pay no levy; those earning $27,223–$34,027 pay a reduced amount. Family thresholds also apply for lower-income households. [2]
Medicare Levy & Surcharge 2026: How to Stop Paying More Than You Owe
By The Fine Print editorial team | Last updated: June 2026 | 11 min read | ⚠️ Not financial advice
Most Australians know they pay a Medicare Levy. Far fewer understand that there’s a completely separate, additional Medicare Levy Surcharge that kicks in above a certain income threshold — and that the easiest way to avoid it is to have the right kind of private health insurance. Getting this wrong costs Australian households hundreds of dollars a year, either by paying a surcharge they could have legally avoided, or by paying for a private health policy that doesn’t actually qualify to exempt them from the surcharge. Here’s exactly how both charges work in 2025-26.📋 What’s in This Guide
- The Medicare Levy — 2% for most residents
- 2025-26 levy thresholds: who pays, who’s exempt
- The Medicare Levy Surcharge — the charge people miss
- What counts as MLS income (it’s broader than you think)
- MLS tiers and rates for 2025-26
- What counts as qualifying hospital cover
- Does private hospital cover actually save you money?
- Common traps that cost Australians money
- Three actions to take now
- Frequently asked questions
The Medicare Levy — 2% for Most Australian Residents
The Medicare Levy is a simple flat charge — 2% of your taxable income — that funds Australia’s public health system. It applies to most Australian residents. It is calculated as part of your annual tax return and withheld progressively through PAYG where relevant. It is not optional and it is not tied to your use of the public health system — it’s a tax, not a premium. [2]The levy does have a low-income shade-in zone. Below a certain threshold, you pay no levy at all. Between the no-levy and full-levy thresholds, you pay a reduced amount. Once you’re above the full-levy threshold, you pay 2% on your entire taxable income. There is no cap. [2]2025-26 Medicare Levy Thresholds
Individual thresholds (2025-26)
- $0 – $27,222: No Medicare Levy applies
- $27,223 – $34,027: Levy phases in at 10 cents per dollar of income above $27,222
- $34,028 and above: Full 2% Medicare Levy applies
Family thresholds (2025-26)
- Family threshold (no levy): $45,907 combined income
- Add $4,216 for each dependent child or student
- Individual income of the higher earner must also exceed the individual threshold for the levy to apply
The Medicare Levy Surcharge — The Charge Most People Miss
The Medicare Levy Surcharge (MLS) is an additional charge — entirely separate from the base 2% levy — that applies to higher-income Australians who do not have qualifying private hospital cover. It was introduced to encourage higher-income earners to use the private health system and take pressure off the public system. In practice, it functions as an incentive to purchase private hospital insurance: pay the MLS, or buy a qualifying policy and avoid it. [1]⚠️ Two different charges, not one: The Medicare Levy (2%) applies to almost all Australian residents above the low-income threshold. The Medicare Levy Surcharge (1–1.5%) is a separate additional charge that only applies if your income exceeds the threshold AND you don’t have qualifying private hospital cover. Many people think the 2% levy is “the surcharge.” It isn’t — the surcharge is on top of the 2%, and it’s entirely avoidable with the right private health cover. [1][2]
What Counts as MLS Income — Broader Than Taxable Income
The MLS income test uses a broader definition of income than your standard taxable income. This catches many people by surprise. MLS income includes: your taxable income; reportable fringe benefits total (from your PAYG payment summary); reportable employer super contributions (the difference between what your employer contributed and what they were required to under the super guarantee); and total net investment losses. [1][3]💡 Salary packaging trap: A common scenario is someone with a base salary below $101,000 who salary packages significant non-cash benefits (like novated leases or additional super). The reportable fringe benefit amount and any reportable super contributions are added back into MLS income — pushing them over the threshold even though their taxable income is lower. Check your total MLS income, not just your salary. [1][8]
MLS Tiers and Rates for 2025-26
Singles thresholds and MLS rate (2025-26)
- $0 – $101,000: No surcharge (base tier — MLS rate 0%)
- $101,001 – $118,000: Tier 1 — MLS rate 1%
- $118,001 – $158,000: Tier 2 — MLS rate 1.25%
- $158,001 and above: Tier 3 — MLS rate 1.5%
Family/couple thresholds (2025-26)
- $0 – $202,000: No surcharge
- $202,001 – $236,000: Tier 1 — 1%
- $236,001 – $316,000: Tier 2 — 1.25%
- $316,001 and above: Tier 3 — 1.5%
Family threshold increases by $1,500 for each MBS child dependant after the first. The surcharge is applied to the total family income if the family threshold is exceeded and either spouse lacks qualifying hospital cover.
What Counts as Qualifying Hospital Cover
To be exempt from the MLS, your policy must be a qualifying private health insurance policy. The requirements are: it must be from a registered Australian private health insurer; it must include hospital cover (not extras-only or ambulance-only); it must cover treatment in an Australian hospital; and the excess must not exceed $750 for singles or $1,500 for families/couples. [4][5]⚠️ Policies that do NOT qualify for MLS exemption:
- Extras-only cover (dental, optical, physio, etc.) — no hospital component
- Ambulance-only cover
- Overseas visitor health cover or overseas student health cover
- International travel insurance with health benefits
- Hospital policies with an excess above $750 (singles) or $1,500 (families)
- Any policy from an unregistered or overseas insurer
Does Private Hospital Cover Actually Save You Money?
Whether private hospital cover is financially worthwhile versus simply paying the MLS depends on your income tier, the cost of a qualifying policy, and whether you expect to use private hospital services. Here’s how the maths plays out at common income levels: [7][8][6]Example 1: $120,000 income (Tier 1)
MLS owed with no cover: $120,000 × 1% = $1,200. A basic compliant hospital policy: approximately $800–$1,100 per year. Outcome: buying the policy saves you $100–$400 per year and you gain private hospital coverage. The policy pays for itself. [7]Example 2: $130,000 income (Tier 1)
MLS owed: $130,000 × 1% = $1,300. Basic hospital cover at approximately $1,100. Net saving: $200, plus actual hospital coverage. The saving grows at higher incomes and higher tiers. [7]Example 3: $105,000 income (just over threshold)
MLS owed: $105,000 × 1% = $1,050. Basic hospital cover might be $900–$1,100. The saving is marginal at lower Tier 1 incomes — but the cover still provides value if you use it, and the financial argument improves as income rises through each tier. [7][6]Common Traps That Cost Australians Money
- Income creep above $101,000 unnoticed. A pay rise, bonus, or redundancy payment can push MLS income over the threshold. People sometimes discover after lodging their return that they owed the MLS for the full year with no cover. Check early in the financial year, not at tax time. [3][8]
- Wrong type of cover — extras-only or high excess. Thousands of Australians have extras-only cover (dental, optical, physio) and assume it protects them from the MLS. It does not. You need hospital cover with a qualifying excess level. [4][5]
- Failing to claim levy exemptions. Some people entitled to a Medicare levy exemption (e.g. those without full Medicare entitlement on some visa types) don’t claim it and pay levy unnecessarily. If you’re unsure whether you’re entitled to Medicare, check your visa conditions. [2]
- Spouse income pushing over the family threshold. Both spouses’ incomes are combined for the MLS family threshold test. One spouse with no cover above the individual threshold triggers the MLS on their income alone — but combined incomes can also push a couple over the family threshold even if neither individually is above $101,000. [1][3]
- Salary sacrifice pushing into a higher MLS tier. Contrary to what some expect, salary-sacrificed super contributions that are reportable do not reduce MLS income — they’re added back in. Someone who sacrificed extra super hoping to drop below $101,000 may find they’re still above the threshold in MLS income terms. [1]
✅ Three Actions to Take Now
Action 1: Calculate your actual MLS income — not just your taxable income
Start with your expected taxable income for 2025-26, then add: your total reportable fringe benefits (from your payment summary); any reportable employer super contributions above the super guarantee; and total net investment losses. The result is your MLS income. Use the ATO’s Medicare levy surcharge calculator at ato.gov.au, or the dedicated MLSCalc tool at mlscalc.com.au to check whether you’re above the threshold and which tier applies. Do this now — before June 30 — not at tax time when it’s too late to change your cover status for the year. [1][11]Action 2: Compare the MLS cost against a qualifying hospital policy
If you’re above the $101,000 singles (or $202,000 family) threshold, request quotes for a basic compliant private hospital policy — one from a registered Australian insurer, with hospital cover and an excess of $750 or less (singles) / $1,500 or less (families). Use a comparison tool (Compare the Market, iSelect, Finder) to find the lowest-cost qualifying option. Compare that annual premium to the MLS you’d owe at your income tier. In most cases above $110,000, a qualifying policy is cheaper than the MLS — and you get hospital coverage. If you already have cover, verify your excess amount and that it’s genuine hospital cover — not just extras. [5][7][6]Action 3: Get the private health insurance section of your tax return right
When lodging your return, the ATO requires you to complete the private health insurance section accurately — including the policy details, which period it covered, and whether each person in your household had qualifying cover for the whole year. If you changed policies mid-year, or had gaps in cover, you may be liable for the MLS for the period you had no qualifying cover (calculated on a daily basis). If your spouse’s income is relevant to the family threshold, include it accurately. If you’re entitled to a Medicare levy exemption, ensure you claim it with the correct certificate and status. If you use a tax agent, brief them on any PHI or income changes from the prior year. [1][3][8]❓ Frequently Asked Questions
What is the MLS threshold for 2025-26?
$101,000 for singles; $202,000 for families and couples (+$1,500/MBS dependent child after first). Above these thresholds without qualifying hospital cover, you pay the MLS at 1%, 1.25% or 1.5% depending on your income tier. [1][3]Does extras-only cover avoid the MLS?
No. Only hospital cover with a qualifying excess ($750 singles/$1,500 families) from a registered Australian insurer qualifies. Extras-only, ambulance-only, overseas cover and high-excess policies do not exempt you from the MLS. [4][5]Is the Medicare Levy Surcharge the same as the Medicare Levy?
No — they are completely separate. The 2% Medicare Levy applies to almost all residents above the low-income threshold regardless of private cover. The MLS is an additional 1–1.5% that only applies to higher-income earners without qualifying hospital cover. The MLS is avoidable; the levy is not for most people. [1][2]Does salary sacrifice reduce my MLS exposure?
Not necessarily. Reportable employer super contributions and reportable fringe benefits are added back into MLS income — so salary packaging that reduces taxable income may not reduce MLS income by as much as you expect. Always calculate total MLS income before assuming you’re under the threshold. [1][8]⚖️ The Fine Print Verdict
The Medicare Levy Surcharge is one of those charges that bites hardest when you don’t know it exists — and then costs you again when you buy the wrong type of insurance to avoid it. The key things to understand are: the levy (2%) and the surcharge (1–1.5%) are different; the surcharge income test is broader than your taxable income; and only hospital cover with a qualifying excess actually exempts you. For most people earning above $101,000, a basic hospital policy is cheaper than the surcharge and puts them financially ahead while also providing actual coverage. The maths gets more favourable at higher income tiers. The only mistake worse than paying the surcharge unnecessarily is thinking your extras-only or high-excess policy has been exempting you for years when it hasn’t.
👉 Calculate your MLS income. Compare it to the cost of a qualifying policy. Then make the decision that’s right for your situation.
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- ATO, “Medicare levy surcharge,” ato.gov.au/individuals-and-families/medicare-and-private-health-insurance/medicare-levy-surcharge
- ATO, “Medicare levy,” ato.gov.au/individuals-and-families/medicare-and-private-health-insurance/medicare-levy
- Etax, “Medicare levy surcharge 2026,” etax.com.au/medicare-levy-surcharge
- Private Healthcare Australia / privatehealth.gov.au — qualifying hospital cover requirements
- Compare the Market, “Medicare levy surcharge explained,” comparethemarket.com.au/health-insurance/medicare-levy-surcharge
- NIB, “Medicare levy surcharge guide,” nib.com.au/blog/medicare-levy-surcharge
- Bilateral Solutions, “Medicare levy surcharge guide 2026,” bilateralsolutions.com.au/medicare-levy-surcharge
- H&R Block, “Medicare levy surcharge,” hrblock.com.au/tax-academy/medicare-levy-surcharge
- PwC, “Medicare levy surcharge 2026 update,” pwc.com.au
- GMHBA, “Medicare levy surcharge explained,” gmhba.com.au/learn-and-explore/medicare-levy-surcharge-explained
- MLSCalc, “Tax guide 2026,” mlscalc.com.au/tax-guide-2026
This article is general information only and does not constitute financial, tax or health insurance advice. Medicare levy and surcharge rules are updated annually and depend on your personal circumstances. Consult a registered tax agent for advice tailored to your situation. The Fine Print 🇦🇺 is not affiliated with the ATO or any private health insurer.