The Medicare Levy Surcharge (MLS) is an additional tax of 1% to 1.5% that applies to Australian residents who earn above a certain income and do not hold an appropriate level of private hospital cover. It is charged on top of the standard 2% Medicare levy and is designed to encourage higher earners to take out private health insurance, reducing pressure on the public hospital system.
Key Takeaways
- The MLS is 1%, 1.25%, or 1.5% depending on your income tier
- It applies if your income exceeds $93,000 (singles) or $186,000 (families) in FY2025–26
- You can avoid it by holding complying private hospital cover (even a basic hospital policy)
- The surcharge is separate from and on top of the standard 2% Medicare levy
- Couples and families share a combined threshold
MLS Income Thresholds — FY2025–26
| Tier | Singles | Families | MLS Rate |
|---|---|---|---|
| Below threshold | Below $93,001 | Below $186,001 | 0% (no surcharge) |
| Tier 1 | $93,001 – $108,000 | $186,001 – $216,000 | 1.0% |
| Tier 2 | $108,001 – $144,000 | $216,001 – $288,000 | 1.25% |
| Tier 3 | $144,001+ | $288,001+ | 1.5% |
Source: ATO FY2025–26. The family threshold increases by $1,500 for each Medicare levy family surcharge dependent child after the first.
The income test for the MLS uses your income for surcharge purposes, which includes taxable income, total net investment losses, fringe benefits, and employer-paid super contributions.
How Much Extra Tax Does the Surcharge Cost?
At the Tier 1 rate of 1% on $100,000 income: $1,000 in extra tax.
This is why many Australians in this income band take out a basic hospital cover policy. A basic hospital cover can cost as little as $800–$1,500 per year for a single person, which is often less than the surcharge cost. Whether it makes financial sense depends on your individual circumstances and health needs.
What Cover Avoids the Surcharge?
The private health insurance must be:
- Hospital cover (extras/ancillary cover alone does not count)
- From an Australian registered health insurer (APRA-regulated)
- With an excess no higher than $750 per person / $1,500 per family (for a singles or family policy)
The type of hospital cover (basic, bronze, silver, gold) does not matter for MLS purposes, as long as the excess does not exceed the threshold. Many people take out the cheapest complying basic hospital policy to eliminate the surcharge.
Extras-only cover (dental, optical, physiotherapy) does not count — you need hospital cover.
Calculating Your Potential Surcharge
Example: Single person, $110,000 income, no private hospital cover.
- Base income tax on $110,000: ~$27,217
- Medicare levy: $2,200
- MLS (Tier 2, 1.25%): $1,375
- Total extra from MLS: $1,375
Taking out basic hospital cover at, say, $1,000/year eliminates the $1,375 surcharge. The person is $375 better off financially and has hospital cover.
MLS vs Medicare Levy — The Difference
| Medicare Levy | Medicare Levy Surcharge | |
|---|---|---|
| Who pays | Almost all residents | High earners without complying hospital cover |
| Rate | 2% (flat) | 1%–1.5% |
| Can be avoided | Only if low income or exempt | Yes — take out complying private hospital cover |
| Added to income tax | Yes | Yes, on top of the 2% levy |
At the top tier (Tier 3, above $144,000 singles), a person without private hospital cover pays a combined 47% marginal rate on income above $190,000 (45% income tax + 2% Medicare levy) plus the 1.5% surcharge — for an effective top rate of 48.5% on each dollar in the top bracket.
How the MLS Appears on Your Tax Return
When you lodge via myTax, you will be asked whether you held private hospital cover for the full year, part of the year, or none of the year. You provide the insurer’s name and your membership number. The ATO may request verification.
If you held cover for only part of the year, the surcharge applies proportionally to the days without cover.
Frequently Asked Questions
At what income does the Medicare Levy Surcharge kick in? For individuals, the MLS applies once your income for surcharge purposes exceeds $93,000 in FY2025–26. For couples and families, the threshold is $186,000.
Does basic private hospital cover really avoid the surcharge? Yes — any complying private hospital policy with an excess of $750 or less (singles) eliminates the surcharge, regardless of whether the policy is bronze, silver, or gold.
If I have hospital cover for part of the year, do I pay the surcharge? You pay the MLS proportionally for the days you did not hold cover. If you were without cover for 90 days, approximately 90/365 of the annual surcharge amount applies.
Does my workplace private health insurance count? Yes, if the policy is a complying private hospital cover policy (registered with APRA, excess within the limit), even if the employer pays the premiums. You declare it when lodging.
Can the MLS apply to children’s income? Children’s income is generally too low to trigger the surcharge. The income test uses the dependent child’s income, not the parent’s, for children assessed separately.
This article provides general tax information. For advice tailored to your situation, speak with a registered tax agent or accountant. Find one through the Tax Practitioners Board register.