Most Australian resident taxpayers pay the Medicare Levy: a flat 2% of taxable income that helps fund the public health system. But for higher-income earners who do not hold an eligible private hospital insurance policy, an additional Medicare Levy Surcharge (MLS) of 1.0%, 1.25%, or 1.5% applies on top. For a single person earning $125,000 with no private hospital cover, the MLS alone adds roughly $1,562 to their annual tax bill — often more than the cost of a basic hospital policy itself. This article explains how the levy and surcharge are calculated, who is exempt, the 2025-26 income tiers, and why holding eligible private hospital cover can be a net saving for many people.
The Medicare Levy: 2% on Taxable Income
The Medicare Levy is 2% of your taxable income for the year. It is calculated on the same income base as your regular income tax and appears as a separate line on your notice of assessment. Most Australian residents pay it; low-income earners may receive a reduction or full exemption.
For the 2025-26 income year, singles with taxable income at or below $25,284 pay no Medicare Levy. Between $25,284 and $31,605, a reduced levy applies on a sliding scale. The full 2% applies above $31,605. For couples and families, the threshold increases by $1,500 for each dependent child.
Certain taxpayers are exempt from the Medicare Levy entirely: those with a Medicare Entitlement Statement (such as some temporary visa holders not enrolled in Medicare) and individuals who qualify for a medical exemption certificate from Services Australia.
The Medicare Levy Surcharge: What It Is and Who Pays
The MLS is separate from the Medicare Levy. It applies only to taxpayers who:
- Earn above the MLS income threshold, AND
- Do not hold an eligible private hospital insurance policy for the full year (or part of it).
The MLS is calculated on your taxable income plus reportable fringe benefits, but not on reportable super contributions. The income thresholds for the 2025-26 financial year, relevant for the tax return being lodged in mid-to-late 2026, are as follows:
Singles
- $101,000 or below: No MLS.
- $101,001 to $118,000: 1.0% surcharge.
- $118,001 to $158,000: 1.25% surcharge.
- $158,001 and above: 1.5% surcharge.
Couples and Families
- $202,000 or below (combined): No MLS.
- $202,001 to $236,000: 1.0% surcharge.
- $236,001 to $316,000: 1.25% surcharge.
- $316,001 and above: 1.5% surcharge.
For families, the threshold increases by $1,500 for each dependent child after the first. If one partner holds eligible private hospital cover but the other does not, the uninsured partner may still attract the MLS.
What Counts as “Eligible Private Hospital Cover”
To avoid the MLS, the policy must be a complying hospital insurance product registered under the Private Health Insurance Act 2007. It must cover you as a private patient in a public or private hospital. Extras-only, ambulance-only, or overseas visitor health cover (OVHC) policies do not satisfy the requirement.
Basic hospital policies with a higher excess are often priced below the surcharge amount for many income levels — which is the main reason the policy was introduced: to encourage people who can afford private cover to take it up, reducing demand on the public system.
How the MLS Appears on Your Tax Return
You do not “pay” the MLS as a separate bill. It is calculated by the ATO when you lodge your tax return and is included in your overall tax-assessment result. If your employer withheld insufficient amounts during the year, the MLS can result in a tax bill rather than a refund.
You can avoid the MLS for a partial year if you held eligible cover for only part of the year. The surcharge is pro-rated based on the number of days you held cover. If you take out a policy mid-year, you are only liable for the MLS on the days you were uninsured.
Frequently Asked Questions
I earn just above the threshold. Is basic hospital cover worth it?
Often yes. For a single earning $105,000, the MLS is 1.0% or $1,050 per year. Basic hospital policies can be found below that, meaning you get hospital cover and avoid the surcharge for a net saving. Compare premiums against your expected surcharge before deciding.
Does overseas student health cover (OSHC) count as eligible hospital cover?
No. OSHC, OVHC, and international health policies do not satisfy the MLS exemption. You must hold a complying Australian private hospital policy.
If I hold hospital cover only for part of the year, how is the MLS calculated?
The ATO pro-rates the MLS based on the number of days you were without eligible cover. If you were insured for 200 days and uninsured for 165, you pay roughly 45% of the full-year surcharge.
What happens to the MLS if I have a partner?
If you are in a de facto relationship or married, the family threshold applies. Even if only one partner is a high earner, the combined income of both is used. If the uninsured partner earns above the singles threshold while the combined income is below the family threshold, the singles tier applies to that partner individually.
Where do I check my MLS liability?
The ATO’s myGov portal, under the tax section, shows your reported private health insurance status each year. Your health insurer sends a statement to the ATO confirming your days of cover.
Data Sources and Currency
All MLS thresholds and rates in this article are drawn from the ATO’s published Medicare Levy Surcharge schedules for the 2025-26 income year. The Medicare Levy exemption thresholds are also sourced from the ATO. The MLS income definition (taxable income plus reportable fringe benefits) is set by the A New Tax System (Medicare Levy Surcharge—Fringe Benefits) Act 1999.
- ATO — Medicare Levy: https://www.ato.gov.au/individuals-and-families/medicare-and-private-health-insurance/medicare-levy
- ATO — Medicare Levy Surcharge: https://www.ato.gov.au/individuals-and-families/medicare-and-private-health-insurance/medicare-levy-surcharge
- PrivateHealth.gov.au — Government health insurance comparison: https://www.privatehealth.gov.au/
- Services Australia — Medicare Entitlement Statement: https://www.servicesaustralia.gov.au/medicare-entitlement-statement
Data current as at July 2026. MLS thresholds are usually updated annually for the new financial year; verify with the ATO for the latest figures.
Disclaimer
This article provides general information only and does not constitute financial, tax, legal, or health insurance advice. Your Medicare Levy and MLS liability depends on your individual income, family situation, and insurance status. Confirm your obligations with the Australian Taxation Office, a registered tax professional, or a licensed health insurance adviser.