How the Medicare Levy Surcharge works
The surcharge exists to push higher earners into private hospital cover and take pressure off public hospitals. It is not a penalty you pay to your health fund; it is extra tax, assessed by the ATO when you lodge your return and shown on your notice of assessment as part of "Medicare levy and surcharge". Your employer does not withhold for it, so an unexpected MLS bill usually shows up as a smaller refund.
Two things decide whether you pay. First, your income for MLS purposes must be above the threshold for your family status. Second, you, your spouse or one of your dependent children must have gone without an appropriate level of private patient hospital cover for at least part of the year. If everyone in the family was covered all year, income does not matter: there is no surcharge.
When both apply, your income sets the tier and the rate, but the rate is charged only on your taxable income, reportable fringe benefits and any amount on which family trust distribution tax was paid. Net investment losses and super contributions push you into a higher tier without being surcharged themselves. The ATO's own example: taxable income of $90,000, fringe benefits of $20,000 and net investment losses of $17,000 gives an MLS income of $127,000 (tier 2, 1.25%), but the surcharge is 1.25% of $110,000, which is $1,375.
MLS thresholds for 2025–26 and 2026–27
The thresholds are indexed each year. Use the table for the income year you are working on, not the year you are lodging in: a return lodged in late 2026 is for 2025–26.
| Base tier | Tier 1 | Tier 2 | Tier 3 | |
|---|---|---|---|---|
| Singles | $101,000 or less | $101,001 – $118,000 | $118,001 – $158,000 | $158,001 or more |
| Families and single parents | $202,000 or less | $202,001 – $236,000 | $236,001 – $316,000 | $316,001 or more |
| MLS rate | 0% | 1% | 1.25% | 1.5% |
| Base tier | Tier 1 | Tier 2 | Tier 3 | |
|---|---|---|---|---|
| Singles | $105,000 or less | $105,001 – $123,000 | $123,001 – $164,000 | $164,001 or more |
| Families and single parents | $210,000 or less | $210,001 – $246,000 | $246,001 – $328,000 | $328,001 or more |
| MLS rate | 0% | 1% | 1.25% | 1.5% |
A single parent is tested against the family thresholds on their own income. A couple is tested on combined income, and each partner pays any surcharge on their own taxable income and fringe benefits. The per-child increase applies to every family tier, so it matters most for large families:
| Family with | 2025–26 | 2026–27 |
|---|---|---|
| 1 dependent child | $202,000 | $210,000 |
| 2 dependent children | $203,500 | $211,500 |
| 3 dependent children | $205,000 | $213,000 |
| 4 dependent children | $206,500 | $214,500 |
| Income year | Single | Family |
|---|---|---|
| 2022–23 | $90,000 | $180,000 |
| 2023–24 | $93,000 | $186,000 |
| 2024–25 | $97,000 | $194,000 |
| 2025–26 | $101,000 | $202,000 |
| 2026–27 | $105,000 | $210,000 |
What counts as income for MLS purposes
Income for MLS purposes is deliberately wider than taxable income, so negative gearing and salary sacrifice cannot pull you under a threshold. The ATO builds it from these items, for you and your spouse:
| Item | Where it comes from | Sets your tier? | Surcharge charged on it? |
|---|---|---|---|
| Taxable income | Your tax return (excluding any first home super saver released amount) | Yes | Yes |
| Reportable fringe benefits | Your income statement | Yes | Yes |
| Amount on which family trust distribution tax was paid | Supplementary tax return | Yes | Yes |
| Net investment losses | Net rental property loss plus net financial investment loss | Yes | No |
| Reportable super contributions | Reportable employer contributions (salary sacrifice) plus deductible personal contributions | Yes | No |
| Spouse's share of trust net income taxed to the trustee | Spouse details section | Yes, for a couple | No |
If you had exempt foreign employment income and a taxable income of $1 or more, it is added to your taxable income as well. The same "income for surcharge purposes" also decides your tier for the private health insurance rebate, which is why the two sets of thresholds are identical.
Medicare Levy Surcharge vs the Medicare levy
They sound the same and share a line on your assessment, but they are separate charges. Holding private health insurance does nothing to the 2% Medicare levy; it only removes the surcharge.
| Medicare levy | Medicare Levy Surcharge | |
|---|---|---|
| Who pays | Almost every resident taxpayer above the low-income threshold | Only higher earners without appropriate private hospital cover |
| Rate | 2% of taxable income | 1%, 1.25% or 1.5% of taxable income plus reportable fringe benefits |
| Income threshold (2025–26) | No levy at or under $28,011 taxable income for singles; reduced up to $35,013 | $101,000 single, $202,000 family (income for MLS purposes) |
| Avoided by private health insurance? | No | Yes, with hospital cover at or under the excess limit |
| Collected | Through PAYG withholding during the year | At tax time; not covered by PAYG withholding |
Who is exempt from the surcharge
You pay no MLS for the year if any of these applied for the whole year:
- You and all your dependants held an appropriate level of private patient hospital cover.
- You and your dependants were in a Medicare levy exemption category (for example, foreign residents, or people not entitled to Medicare benefits).
- You were single with no dependent children and your income for MLS purposes was $101,000 or less in 2025–26.
- You were a single parent and your income was at or under the family threshold for your number of children.
- You had a spouse all year and your combined income was at or under the family threshold, or it was over the threshold but your own income for MLS purposes was $28,011 or less (2025–26).
A "dependant" for the MLS is your spouse and any child under 21, or aged 21 to 24 and studying full time, who is an Australian resident you contribute to. Foster children are not included. When parents live apart, a child can count as a dependant of each parent at the same time.
The excess limit: when hospital cover does not count
Not every hospital policy gets you out of the surcharge. For the MLS, "appropriate" cover is hospital cover from an Australian registered insurer with an excess of $750 or less for a policy covering one person, or $1,500 or less for couples and families. Any hospital tier counts, including Basic, provided the excess is within the limit. Extras-only cover, travel insurance and cover from an overseas fund never count.
If you choose a high excess to cut the premium, check it against the limit. A $1,000-excess singles policy is still hospital cover, but it will not stop the surcharge. Our guide to hospital cover tiers and excesses explains the trade-off.
Part-year cover and changes during the year
The surcharge is charged by the day. If you take out cover part-way through the year, you pay only for the days you were uncovered. A single person with an MLS income of $109,000 in 2025–26 who takes out hospital cover on 16 January 2026 is in tier 1 (1%) and is liable for the 199 days from 1 July 2025 to 15 January 2026. Your insurer's annual tax statement shows the number of days you held appropriate cover.
Changes of family status are handled in periods. For the days you were single, the single threshold applies to your own income; for the days you had a spouse or dependent children, the family threshold applies to your own income. The rate is then set by your status on 30 June. This calculator assumes the same status all year, so if you married, separated or became a parent during the year, treat its figure as a guide and check the ATO's worked examples in the M2 instructions.
Cancelling hospital cover while you travel overseas can trigger the surcharge for those days. Ask your fund about suspending cover instead, and compare the premium saved with the surcharge you would pay.
Is hospital cover cheaper than paying the surcharge?
Often, but not always, and the answer depends on your income, not on the average premium. The calculator shows a break-even figure: the most a policy can cost you after the government rebate before it becomes the more expensive option. Two examples on 2025–26 figures:
- A single person with taxable income of $120,000 and no other MLS income is in tier 2. The surcharge is 1.25% of $120,000, or $1,500 for a full year without cover. A qualifying policy that costs less than $1,500 a year after the rebate is the cheaper choice.
- A couple with two children earning $150,000 and $90,000 has a combined income of $240,000. Their family tier 2 range starts at $237,501, so both pay 1.25%: $1,875 and $1,125, or $3,000 in total. A family hospital policy under $3,000 a year after the rebate costs less than the surcharge.
Remember the other side of the ledger. If you are over 30, delaying hospital cover also builds a Lifetime Health Cover loading of 2% a year that you will pay on your premium for up to 10 years. And cover bought only to avoid the surcharge still has waiting periods and exclusions: check what a Basic or Bronze policy actually pays for before you rely on it. Our full guide to the Medicare Levy Surcharge goes through the edge cases.
Frequently asked questions
What is the Medicare Levy Surcharge threshold for 2026?
For the 2025–26 income year (1 July 2025 to 30 June 2026) the surcharge starts above $101,000 for singles and $202,000 for families. For 2026–27 the thresholds rise to $105,000 and $210,000. Families add $1,500 for each dependent child after the first.
Does everyone pay the Medicare Levy Surcharge?
No. You only pay it if your income for MLS purposes is above the threshold and you, your spouse or a dependent child did not hold an appropriate level of private hospital cover for some part of the year. Most people pay the ordinary 2% Medicare levy, which is a different thing.
How do I avoid the 2% Medicare levy?
You generally can't avoid the 2% Medicare levy with private health insurance; it funds Medicare and is charged regardless. It is reduced or not charged if your taxable income is under the low-income threshold, and some people qualify for an exemption (for example, foreign residents or people not entitled to Medicare). What private hospital cover avoids is the separate Medicare Levy Surcharge of 1% to 1.5%.
How do I calculate my Medicare Levy Surcharge?
Add up your income for MLS purposes (taxable income, reportable fringe benefits, net investment losses and reportable super contributions, plus your spouse's if you have one). Find the tier that total falls in. Multiply your taxable income plus reportable fringe benefits by that tier's rate, then by the share of the year you went without appropriate hospital cover. The calculator on this page does exactly that.
Does extras cover stop the Medicare Levy Surcharge?
No. Only private patient hospital cover from an Australian registered insurer counts. Extras (general treatment) cover, travel insurance and cover from an overseas insurer do not.
What is the MLS rate for tiers 1, 2 and 3?
1% for tier 1, 1.25% for tier 2 and 1.5% for tier 3. The base tier pays no surcharge. The rates are the same in 2025–26 and 2026–27; it is the income thresholds that are indexed each year.
