The Medicare levy surcharge (MLS) is an extra tax of up to 1.5% that higher-income earners pay if they don't hold private hospital cover. It's the government's nudge to take out private health insurance and ease the load on the public system. This guide explains who pays it, the 2025–26 thresholds, and how a modest hospital policy can wipe the surcharge out entirely.
What the Medicare levy surcharge is
The MLS is a tax levied on top of your normal income tax. It applies if your income for MLS purposes is above a set threshold and you (and your dependants) don't have an appropriate level of private patient hospital cover for the full year. The rate is tiered — 1%, 1.25% or 1.5% of your income — and rises as your income rises.
Its whole purpose is to encourage higher earners to take out private hospital insurance, so that fewer people rely solely on Medicare and the public hospital system. If you hold the right cover, you pay no surcharge no matter how much you earn.
The Medicare levy surcharge is not the Medicare levy
These two are easily confused, but they're separate. The Medicare levy is a flat 2% of taxable income that most Australians pay to help fund Medicare, with reductions and exemptions for low-income earners. The Medicare levy surcharge is an additional charge that only applies to higher earners without private hospital cover.
So a high earner without hospital cover can end up paying both: the 2% levy that nearly everyone pays, and the surcharge of up to 1.5% on top. A high earner who does hold hospital cover pays the 2% levy but avoids the surcharge.
The 2025–26 thresholds and rates
The surcharge kicks in once your income for MLS purposes passes the base tier, and the rate steps up through three tiers. For 2025–26 the Australian Taxation Office sets them as follows:
| Tier | Singles | Families | MLS rate |
|---|---|---|---|
| Base tier | $101,000 or less | $202,000 or less | 0% |
| Tier 1 | $101,001 – $118,000 | $202,001 – $236,000 | 1% |
| Tier 2 | $118,001 – $158,000 | $236,001 – $316,000 | 1.25% |
| Tier 3 | $158,001 or more | $316,001 or more | 1.5% |
The family threshold rises by $1,500 for each dependent child after the first. So a family with two children has a base threshold of $203,500, and one with three children $205,000. Couples and families are assessed on their combined income.
What counts as income for MLS purposes
This is the part that catches people out: the surcharge isn't based on taxable income alone. Your income for MLS purposes is a broader figure that adds several things back on top of taxable income, including:
- Your taxable income.
- Reportable fringe benefits.
- Total net investment losses — including negatively geared rental property losses.
- Reportable super contributions, such as salary-sacrificed amounts.
Because of these add-backs, someone whose taxable income sits just under a threshold can still be pushed over it once super contributions or fringe benefits are counted. It's worth working out the full figure rather than assuming your taxable income is the number that matters.
How private hospital cover lets you avoid it
The surcharge is entirely avoidable. If you hold an appropriate level of private patient hospital cover for the whole financial year, you don't pay the MLS — regardless of how high your income is. To count, the policy must be hospital cover from a registered Australian health insurer, with an excess no greater than $750 for singles or $1,500 for couples and families.
Two things commonly trip people up. First, extras-only cover — dental, optical, physio — does not count; you specifically need hospital cover. Second, the cover has to be in place for the full year. If you take out a policy partway through the year, you may still owe the surcharge for the days you weren't covered.
For many people near a threshold, a basic hospital policy can cost less than the surcharge it removes — which is exactly the trade-off the MLS is designed to create. Whether it stacks up depends on your income, the premium and your own health needs, so it's worth running the numbers both ways.
A quick worked example
Priya is single, has no private hospital cover, and her income for MLS purposes is $120,000:
That $1,500 is on top of the 2% Medicare levy she already pays. If a basic hospital policy meeting the excess rules costs her less than $1,500 for the year, taking it out would leave her better off — and covered. If it costs more, she may choose to wear the surcharge. Either way, the surcharge only disappears if the cover is held for the full year.
The bottom line
The Medicare levy surcharge is an avoidable tax of 1% to 1.5% aimed at higher earners without private hospital cover. The 2025–26 base thresholds are $101,000 for singles and $202,000 for families, and the figure that's tested is your broader income for MLS purposes, not just taxable income. Hold appropriate hospital cover for the full year and the surcharge doesn't apply — or use the MLS calculator to see exactly where you stand.