What Is the Medicare Levy Surcharge? 2025-26 Rates, Income Thresholds & How to Avoid It

What Is the Medicare Levy Surcharge (MLS)?

The Medicare Levy Surcharge (MLS) is an additional tax for Australians who earn above a certain income and do not have an appropriate level of private hospital cover. It’s designed to encourage people to take out private health insurance, reducing demand on the public hospital system.

For the 2025-26 financial year, the ATO will apply the MLS at rates ranging from 1% to 1.5% of your taxable income, depending on your income tier. This is on top of the standard 2% Medicare Levy.

Who Has to Pay the Medicare Levy Surcharge?

You’ll be liable for the MLS if all three conditions apply:

• Your income for MLS purposes (taxable income plus reportable fringe benefits and total net investment losses) exceeds the single threshold of $93,000 (or $186,000 for families, plus $1,500 per dependent child after the first).
• You (and your dependants) do not have an appropriate level of hospital cover (i.e., a policy that covers hospital treatment).
• You are not exempt from the Medicare Levy (e.g., foreign residents, some temporary visa holders).

Note: Singles earning under $93,000 and families earning under $186,000 are not liable for the MLS, regardless of their insurance status.

2025-26 MLS Rates and Tiers

Income Tier (Singles)	Income Tier (Families)	MLS Rate
$93,001 – $108,000	$186,001 – $216,000	1%
$108,001 – $144,000	$216,001 – $288,000	1.25%
$144,001+	$288,001+	1.5%

For families, the family threshold increases by $1,500 for each dependent child after the first. For example, a family with two children has a family threshold of $186,000 + $1,500 = $187,500.

How Much Could the MLS Cost You?

Let’s say you’re single and earn $120,000 in 2025-26. Without hospital cover, your MLS would be:

• MLS rate: 1.25%
• MLS amount: $120,000 × 1.25% = $1,500

Add the standard Medicare Levy (2% = $2,400), and you’re paying $3,900 in Medicare-related taxes.

Use our income tax calculator to estimate your total tax including the MLS.

How to Avoid the Medicare Levy Surcharge

The simplest way to avoid the MLS is to hold an appropriate level of private hospital cover for the full financial year. But there are a few things to watch:

• Appropriate cover means a policy that includes hospital treatment (not just extras like dental or physio).
• You must hold the policy for the entire income year (1 July to 30 June). Taking out cover mid-year won’t exempt you for the months you were uninsured.
• If you drop your cover during the year, you may still be liable for the MLS for that period.

Exceptions: Some people are exempt from the MLS, including:

• Members of the Australian Defence Force
• Veterans with a Department of Veterans’ Affairs Gold Card
• People who live overseas for the full year

How Is MLS Calculated and Reported?

The MLS is calculated automatically by the ATO when you lodge your tax return. You don’t need to do anything special – just answer the question about whether you had hospital cover. Your health insurer will provide a statement (usually via myGov) showing the days you were covered.

If you’re liable for the MLS, it will appear as an additional tax on your notice of assessment. You can also see it estimated in the ATO’s online calculator or our own income tax calculator.

Is It Cheaper to Pay the MLS or Buy Hospital Cover?

It depends on your income, age, and the cost of a suitable policy. For many higher earners, a basic hospital policy may cost less than the MLS. For example, a basic hospital policy for a single person in their 30s might cost around $1,200–$1,800 per year, while the MLS on $120,000 would be $1,500.

But there are other factors:

• Lifetime Health Cover loading: If you don’t take out hospital cover before age 31, you’ll pay a 2% loading for every year you delay – which can make insurance much more expensive later.
• Extras cover is optional and doesn’t affect the MLS.
• Policy exclusions and excess levels affect premiums.

Tip: Use the income tax calculator to see your MLS liability, then compare it with private health insurance quotes to decide what’s best for you.

Key Takeaways

• The MLS is an extra tax for singles earning over $93,000 (or families over $186,000) who don’t have hospital cover.
• Rates are 1%, 1.25%, or 1.5% of income, depending on your income tier.
• You can avoid it by holding appropriate private hospital cover for the full financial year.
• Always check your income for MLS purposes – it includes reportable fringe benefits and net investment losses.

This is general information only, not financial advice.