What is the Medicare Levy Surcharge?

How the Medicare Levy Surcharge works

First, the distinction that trips people up: the MLS is not the Medicare levy. The Medicare levy is a separate 2% charge that most Australian taxpayers pay to fund the public health system. The MLS is an extra tax that only applies to certain people, and you can end up paying both.

It's assessed through your annual tax return. If you earned above the threshold and didn't hold eligible hospital cover for part of the year, you'll owe the surcharge for those days without cover, calculated pro-rata.

2026-27 income thresholds and rates

• Base (no MLS): up to $105,000 single, up to $210,000 family, 0%
• Tier 1: $105,001-$123,000 single, $210,001-$246,000 family, 1%
• Tier 2: $123,001-$164,000 single, $246,001-$328,000 family, 1.25%
• Tier 3: $164,001+ single, $328,001+ family, 1.5%

The family threshold increases by $1,500 for each dependent child after the first. These figures move most years, so double check them at ato.gov.au before you rely on them for a real decision.

Your MLS income also isn't just your salary. The ATO adds up your taxable income, reportable fringe benefits, reportable employer super contributions (like salary sacrifice your employer reports), and net investment losses. Someone on a $100,000 salary who salary sacrifices $10,000 into super and has $5,000 in reportable fringe benefits could have MLS income well above $105,000, even though their take-home pay looks lower.

What counts as eligible cover

Not every private health policy gets you off the hook. To avoid the MLS, your policy needs to be hospital cover (not extras-only) with a registered Australian insurer, and carry an annual excess of $750 or less for singles, or $1,500 or less for couples and families.

Extras-only cover, dental, optical, physio and the like, doesn't count, neither does Overseas Visitors Cover or Overseas Student Health Cover. The excess limit is the one that catches people out: a hospital policy with a $1,000 single excess to keep premiums down won't exempt you, you'd need to switch to $750 or less.

A worked example

Emma earns $118,000 in taxable income with no private hospital cover. Her income sits in Tier 1, so her MLS is 1% of $118,000, which is $1,180 in extra tax. She also pays the standard 2% Medicare levy of $2,360, a combined $3,540.

Compare that to a basic hospital policy, which typically runs somewhere in the $1,000-$1,500 a year range for a single adult, depending on the insurer, state and excess (get an actual quote before assuming). At $118,000, the financial case for cover is genuinely marginal, the MLS and a basic premium are roughly equivalent, though cover also means you can actually use the private hospital system. At higher incomes the maths tips more clearly toward cover: someone on $170,000 pays 1.5% MLS, or $2,550 a year, almost certainly more than a basic hospital policy would cost.

Common misconceptions

"Private health insurance always saves me money." Not necessarily, especially at Tier 1 incomes. If your MLS bill is $1,100 but a compliant hospital policy costs $1,400 a year, you're paying more for cover than you'd pay in surcharge. Run your own numbers rather than assuming.

"Extras-only cover exempts me." It doesn't. The ATO requires hospital cover specifically.

"My income is just under the threshold, so I'm fine." Reportable fringe benefits and reportable employer super contributions get added on top of taxable income for MLS purposes. If you salary sacrifice or receive benefits through work, your MLS income could sit higher than your payslip suggests, check your income statement before assuming you're under the threshold.