How the Medicare levy surcharge works
The Medicare levy surcharge (MLS) is an extra charge of 1% to 1.5% of income, paid by higher earners who don't hold private patient hospital cover. It sits on top of the standard 2% Medicare levy, and its purpose is to encourage people who can afford private health insurance to take it up, easing demand on the public system.
Two things have to be true for you to pay it: your income for MLS purposes is above the threshold, and you (and your family) didn't hold an eligible hospital policy for the full year. If either isn't true, the surcharge is nil.
The 2025–26 income tiers
The surcharge is tiered — the more you earn, the higher the rate. These are the thresholds for 2025–26:
| Single | Family | Tier | Surcharge |
|---|---|---|---|
| $101,000 or less | $202,000 or less | Base | 0% |
| $101,001 – $118,000 | $202,001 – $236,000 | Tier 1 | 1.0% |
| $118,001 – $158,000 | $236,001 – $316,000 | Tier 2 | 1.25% |
| $158,001 and over | $316,001 and over | Tier 3 | 1.5% |
Unlike income tax, the surcharge isn't worked out band by band — once your income reaches a tier, that single rate applies to your whole income for MLS purposes. The family thresholds apply if you have a spouse or dependants, and rise by $1,500 for each dependent child after the first. Use the year selector in the calculator for earlier years, where the thresholds were lower.
What counts as income for MLS purposes
It's broader than your salary. Income for MLS purposes is your taxable income plus reportable fringe benefits, reportable super contributions, total net investment losses (including rental losses) and a few other items. For a couple or family, it's the combined figure. This is why some people are caught by the surcharge even though their salary alone sits under the threshold.
How to avoid it
The surcharge is avoided by holding an eligible private patient hospital cover policy for the full financial year. Two points catch people out: extras-only cover (dental, optical and so on) does not count — it has to be hospital cover — and the policy has to be held for the whole year, or the surcharge applies for the days you weren't covered.
Is hospital cover worth it compared to the surcharge?
If a basic hospital policy costs less than the surcharge you'd otherwise pay, taking the policy can be the cheaper option — and unlike the surcharge, the policy gives you actual hospital cover in return. The calculator's optional comparison shows the difference once you enter a premium. Two things worth factoring in: the government's income-tested private health insurance rebate reduces what you actually pay for a policy, while the Lifetime Health Cover loading adds 2% to premiums for each year you first take hospital cover after age 31. Insurance is also a health decision, not only a tax one.
Worked example: a single earner on $120,000
Here's the surcharge for a single person with $120,000 of income for MLS purposes in 2025–26, without hospital cover:
Single, $120,000 income for MLS purposes
If a basic hospital policy cost this person less than $1,500 for the year, taking the cover would be cheaper than the surcharge — and it would also give them private hospital cover, which the surcharge does not.