Medicare Levy Surcharge Explained: 2025–26 Thresholds
The Medicare Levy Surcharge is an extra 1% to 1.5% tax on higher earners who don't hold private hospital cover. Here is exactly who pays it, how the ATO calculates it and the rules that catch people out.
The Medicare Levy Surcharge (MLS) is an extra tax of 1%, 1.25% or 1.5% that you pay on top of the Medicare levy if your income is above a threshold and you don’t hold an appropriate level of private hospital cover. For the 2025–26 income year the threshold is $101,000 for singles and $202,000 for families. Below that, or with the right cover for the whole family all year, you pay no surcharge at all.
That one sentence hides most of the detail that decides whether you actually pay: what the ATO counts as income, who counts as family, which policies qualify and what happens when your circumstances change mid-year. This guide takes each in turn. If you just want your number, the Medicare Levy Surcharge calculator works it out with the current thresholds.
Why the surcharge exists
The MLS is a policy lever, not a fee. It is designed to encourage people on higher incomes to take out private hospital cover and use the private system, which takes pressure off public hospitals. It sits alongside two other levers: the private health insurance rebate, which makes cover cheaper for people on lower and middle incomes, and Lifetime Health Cover loading, which charges more to people who take out cover after their early thirties.
The surcharge is assessed by the ATO when you lodge your tax return. It is not deducted by your employer through PAYG withholding, so if you owe it, you find out as a smaller refund or a tax bill. On your notice of assessment it appears together with the ordinary levy as “Medicare levy and surcharge”.
2025–26 and 2026–27 thresholds and rates
The thresholds are indexed every year. The rates are the same in both years.
2025–26 income year (1 July 2025 to 30 June 2026)
| 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 | $202,000 or less | $202,001 – $236,000 | $236,001 – $316,000 | $316,001 or more |
| MLS rate | 0% | 1% | 1.25% | 1.5% |
2026–27 income year (1 July 2026 to 30 June 2027)
| 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 | $210,000 or less | $210,001 – $246,000 | $246,001 – $328,000 | $328,001 or more |
| MLS rate | 0% | 1% | 1.25% | 1.5% |
Family thresholds go up by $1,500 for each MLS dependent child after the first. A family with three children in 2025–26 has a base threshold of $205,000. Source: ATO, checked 28 September 2026.
Use the table for the income year the return covers. A return you lodge in October 2026 is for 2025–26, so the $101,000 and $202,000 figures apply to it, even though the 2026–27 figures are already published.
How the surcharge is calculated
The calculation has three steps, and the first is where most people go wrong.
Step 1: work out your income for MLS purposes
Income for MLS purposes is broader than taxable income. It is the total of:
- your taxable income (leaving out any first home super saver released amount), including any amount on which family trust distribution tax has been paid
- your reportable fringe benefits
- your total net investment losses (net financial investment losses plus net rental property losses)
- your reportable super contributions (reportable employer contributions such as salary sacrifice, plus personal contributions you claimed a deduction for)
- if you had exempt foreign employment income and a taxable income of $1 or more, that foreign income too.
If you have a spouse, you add their income worked out the same way, including their share of any trust net income on which the trustee paid tax.
The effect is that negative gearing and salary sacrifice can’t take you under a threshold. Someone with a $110,000 salary and a $15,000 rental loss has taxable income of $95,000, which is under the single threshold. But the loss is added back for the MLS, so their income for MLS purposes is $110,000: tier 1 for a single in 2025–26.
Step 2: find your tier
Compare that income with the single or family thresholds for the year. You are tested against the family thresholds if, for the period in question, you had a spouse or dependent children. Single parents use the family thresholds on their own income. Couples use their combined income.
Step 3: apply the rate to the right base
This is the part that surprises people. The rate for your tier is charged only on your taxable income, reportable fringe benefits and any amount on which family trust distribution tax was paid. Investment losses and super contributions help decide your tier but are not themselves surcharged.
The ATO’s own example: Josh is single with taxable income of $90,000, reportable fringe benefits of $20,000 and net investment losses of $17,000. His MLS income is $127,000, which puts him in tier 2 at 1.25%. The surcharge is 1.25% of $110,000 ($90,000 + $20,000), which is $1,375.
In a couple, each partner pays the surcharge on their own taxable income and fringe benefits, at the rate set by the couple’s combined income. A partner whose own income for MLS purposes is very low is let off entirely: in 2025–26, if you had a spouse for the whole year and your own MLS income was $28,011 or less, you pay no MLS even if the couple’s combined income is over the family threshold.
Who counts as family
For the MLS you are a member of a family for any period in which you had a spouse or a dependent child who was an Australian resident and you contributed to their maintenance.
- A spouse is a married partner, a partner in a registered relationship, or someone you live with on a genuine domestic basis as a couple, of any sex. If your spouse worked during the year, they are still treated as your dependant.
- A dependent child is under 21, or 21 to 24 and studying full time. It includes adopted children, stepchildren and children who are yours under the Family Law Act. Foster children are not included.
- When parents live apart, a child is treated as a dependant of each parent, regardless of how many nights they spend in each home.
Because the surcharge applies if any member of the family lacked appropriate cover, a family policy has to cover everyone who counts. A teenager left off the policy can trigger the surcharge for the whole household.
What counts as appropriate hospital cover
Appropriate cover is private patient hospital cover from an Australian registered health insurer, for treatment in an Australian hospital, with an excess no higher than:
| Policy | Maximum excess for MLS purposes |
|---|---|
| Covers one person | $750 |
| Covers two or more people (couples, families, single parents) | $1,500 |
Source: ATO, Appropriate level of private patient hospital cover.
Any hospital tier qualifies, including Basic, as long as the excess is within the limit. Things that don’t qualify: extras (general treatment) cover on its own, travel insurance, and cover from an overseas insurer. People sometimes assume a “Bronze” or “Silver” label is what matters. It isn’t. The tier governs what the policy pays for; the excess and the insurer’s registration govern the surcharge. Our hospital cover guide explains how tiers and excesses trade off against the premium.
Who doesn’t pay the MLS
You are exempt for the whole year if one of these was true for the whole year:
- You and all your dependants held appropriate private patient hospital cover.
- You and your dependants were in a Medicare levy exemption category.
- You were single with no dependent children and your income for MLS purposes was at or under the single threshold.
- 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 but your own MLS income was at or under the low-income cut-off ($28,011 in 2025–26).
If none of those applied for the whole year, you may still owe the surcharge only for part of it.
Part-year cover, new partners and separations
The surcharge is worked out by the day. On your tax return, question M2 asks for the number of days you were not liable for the surcharge; your health fund’s annual tax statement shows how many days you held appropriate cover.
If you take out cover part-way through the year, you pay only for the days before it started. A single person with MLS income of $109,000 in 2025–26 who takes out hospital cover on 16 January 2026 is in tier 1, and is liable for 199 days: 1% of their taxable income and fringe benefits, multiplied by 199/365.
When your family status changes, the year is split into periods:
- For days you were single, you’re liable if your own income for MLS purposes is over the single threshold.
- For days you had a spouse or dependent children, you’re liable if your own income is over the family threshold.
- The rate for the whole year is set by your status on 30 June: combined income against the family tiers if you had a spouse on 30 June, your own income against the single tiers if you didn’t.
The ATO’s worked example: Michelle, uncovered all year with MLS income of $102,000, separated on 12 October 2025. For the 104 days she was part of a couple she was under the $202,000 family threshold and not liable. For the rest of the year she was single and over $101,000, so she paid 1% on $102,000 for 262 of 365 days: $732.16.
Travel and suspending cover
If you cancel your hospital cover while you travel overseas, you can become liable for the surcharge for those days. Many insurers let you suspend cover instead, and a suspension approved by your insurer doesn’t count as a break for Lifetime Health Cover purposes. Before cancelling, ask your fund what you would save and compare it with the surcharge for the days you would be away.
Is it cheaper to take out cover than to pay the MLS?
It depends on your income, not on an average premium. The surcharge grows with your income; the premium for a Basic or Bronze policy doesn’t. So the higher your income, the more likely cover is the cheaper option.
Take a single person in 2025–26 with taxable income of $120,000 and nothing else to add. They’re in tier 2, so a full year without cover costs 1.25% × $120,000 = $1,500. If a hospital policy that meets the excess limit costs them less than $1,500 a year after the government rebate, holding it is cheaper than paying the surcharge. At $160,000 (tier 3, 1.5%) the break-even rises to $2,400.
A couple with two children earning $150,000 and $90,000 has a combined MLS income of $240,000. With two children the family tier 2 range starts at $237,501, so both pay 1.25%: $1,875 and $1,125, a total of $3,000 for a full year without cover.
Three things to weigh before buying a policy just to avoid the surcharge:
- The rebate falls as income rises. In tier 3 there is no rebate, so compare the full premium against the surcharge.
- LHC loading may apply. If you’re over 31 and taking out cover for the first time, the premium includes a loading of 2% for each year over 30. The LHC calculator shows yours.
- A cheap policy pays for little. A Basic policy with a high excess stops the surcharge, but it may not cover what you would actually need. Waiting periods apply to new cover too.
MLS, the Medicare levy and the rebate side by side
| Medicare levy | Medicare Levy Surcharge | Private health insurance rebate | |
|---|---|---|---|
| What it is | 2% tax that funds Medicare | Extra 1%–1.5% tax on higher earners without hospital cover | Government contribution to your premium |
| Income test (2025–26) | None payable at or under $28,011 taxable income (singles) | Above $101,000 single / $202,000 family (MLS income) | Falls through tiers 1 and 2; nothing in tier 3 (same income thresholds as the MLS) |
| Private cover changes it? | No | Yes: appropriate hospital cover removes it | Only paid if you have a complying policy |
| When it’s settled | PAYG withholding during the year, finalised at tax time | At tax time | As a premium reduction, or as a tax offset at tax time |
Checklist before you lodge
- Get your private health insurance statement from your fund (the details are usually pre-filled in your tax return).
- Check that every family member, including older student children, was on the policy for the whole year.
- Check the policy’s excess against the $750 / $1,500 limits.
- Add back rental and investment losses and salary-sacrificed super when you estimate your MLS income.
- If you married, separated or had a baby during the year, expect the ATO to split the year into periods.
When you’re ready to look at cover, our directory of Australian health funds lists every registered insurer with its official complaints and benefits data, or you can compare health insurance directly.
Frequently asked questions
What is the Medicare Levy Surcharge threshold for 2026?
For the 2025–26 income year the surcharge applies above $101,000 for singles and $202,000 for families (plus $1,500 for each dependent child after the first). For the 2026–27 income year the thresholds are $105,000 and $210,000.
Does everyone pay the Medicare Levy Surcharge?
No. You only pay it if your income for MLS purposes is above the threshold and you or someone in your family went without an appropriate level of private hospital cover during the year. Most taxpayers pay only the 2% Medicare levy.
How do I avoid the MLS?
Hold private patient hospital cover with an Australian registered insurer for you, your spouse and all your dependent children for the whole year, with an excess of no more than $750 for a one-person policy or $1,500 for any other policy. Any hospital tier counts, including Basic. Extras-only cover does not.
How to avoid the 2% Medicare levy?
Private health insurance doesn't remove the 2% Medicare levy. It is reduced or not charged for people on low incomes (in 2025–26, no levy is payable by a single person with taxable income of $28,011 or less), and some people qualify for an exemption, such as foreign residents or people not entitled to Medicare benefits.
How much do I earn before I pay the Medicare levy?
In 2025–26 a single person pays no Medicare levy on taxable income of $28,011 or less, and a reduced levy up to $35,013. Seniors and pensioners entitled to SAPTO pay none up to $44,268. Families pay none on family taxable income of $47,238 or less, plus $4,338 for each dependent child.
What is the MLS rate for income categories tier 2 and tier 3?
Tier 1 is 1%, tier 2 is 1.25% and tier 3 is 1.5%. The base tier pays nothing. The rate is set by your income for MLS purposes but charged only on your taxable income, reportable fringe benefits and any amount on which family trust distribution tax was paid.
