Medicare Levy Surcharge (MLS)

What it is, why it exists, and how private health insurance can help you avoid paying extra tax

What is the Medicare Levy Surcharge?

To understand the Medicare Levy Surcharge (MLS), you have to understand the Medicare Levy, and the difference between the two:
 
Medicare Levy
 
A flat 2% of income, paid by almost all Australian taxpayers to fund Australia’s public health system, Medicare.
 
Medicare Levy Surcharge
 
An extra 1%-1.5% on top of the Medicare Levy that applies to higher income earners who don’t have private hospital cover.
 
The Medicare Levy Surcharge is designed to encourage those who can afford it to take out private hospital insurance – helping reduce demand on the public health system.

How does the Medicare Levy Surcharge work?

The MLS is calculated when you lodge your tax return – not throughout the year. Because most employers don’t withhold it from your pay, it can come as an unexpected bill at tax time.
 
The surcharge is tiered, which means the more you earn, the higher the rate you pay. There are three income tiers, each with its own income threshold and surcharge percentage.
 
Below are the current thresholds for the 2026-27 financial year. These are updated periodically, so it’s worth checking the ATO website for the latest figures.
Tier Individual income Family income Surcharge rate
Base $105,000 or less $210,000 or less 0%
Tier 1 $105,001 to $123,000 $210,001 to $246,000 1%
Tier 2 $123,001 to $164,000 $246,001 to $328,000 1.25%
Tier 3 $164,001 or more $328,001 or more 1.5%
A few key things to note
 
  • Once you’re in a tier, the surcharge applies to your entire income, not just the amount over the threshold.
  • For families, the threshold increases by $1,500 for each dependant child after the first. 
  • However, if either partner in a family earns more than the individual Base threshold, they’ll pay the surcharge – even if their combined family income is below the family threshold.

Who does the Medicare Levy Surcharge apply to?

The MLS applies to Australian residents (and some visa holders) who meet both of the following conditions:
 
  • Your income is above the Base threshold
    For the 2026-27 year, the threshold is $105,000 for individuals, or $210,000 for families. If your income is below this, the MLS does not apply to you.
  • You don’t hold eligible private hospital cover
    To avoid the MLS, you must have an active private hospital insurance policy from an Australian-registered insurer. Please note, extras only cover does help you avoid the surcharge.

How to avoid paying the Medicare Levy Surcharge?

Avoiding the MLS is simple: take out an eligible private hospital insurance policy before you lodge your tax return (and maintain it for the full financial year).
 
Here’s what that looks like in practice:
 
  • Choose a registered health insurer
    Your policy must be with a health fund registered in Australia. If it’s not registered, it won’t count – even if you’re paying premiums.
  • Make sure your policy includes hospital cover
    Extras only cover (like optical, dental, and physio) doesn’t exempt you from the MLS. You need a policy that covers you for treatment as a private patient in hospital.
  • Check it’s the right level of cover
    Not all hospital policies qualify. To be MLS-exempt, your policy’s excess (the amount you pay out of pocket per hospital stay) must be $750 or less for singles or $1,500 or less for families. Anything higher, and the policy won’t meet the exemption rules.
  • Maintain hospital cover for the whole year
    Timing matters. If you only hold cover for part of the year, the MLS is calculated proportionally for the days you were uninsured. You won’t pay the full surcharge, but you’ll pay a portion of it.

The simplest way to avoid paying extra tax?

Get private hospital cover. For many people earning above the MLS income threshold, this is the simplest way to avoid paying extra tax.
 
In many cases, basic hospital cover costs less than the Medicare Levy Surcharge itself and comes with the added benefit of private healthcare access.
 
AIA Health offers a range of private hospital policies that meet MLS exemption requirement, making it easier to:
 
  • Avoid the Medicare Levy Surcharge
  • Choose hospital cover without paying for unnecessary extras
  • Access private healthcare and shorter wait time where available
If you’re not sure where to start, let AIA Health help you compare costs and find the option that’s right for you.

Frequently asked questions

The Medicare Levy is a standard 2% tax most Australian residents pay.
 
The Medicare Levy Surcharge is an additional tax that only applies if:
 
  • You earn above the Base income threshold, and
  • You don’t have eligible private hospital cover.
You can’t opt out of the Medicare Levy but can avoid the Medicare Levy Surcharge by taking out eligible private hospital cover.

Yes. Private health insurance does not replace Medicare. Even with private cover, you’ll still pay the 2% Medicare Levy.

No. Extras-only cover does not exempt you from the surcharge. You must have hospital cover that meets MLS requirements.

You don’t need top-tier cover. A basic hospital policy can be enough, as long as:
 
  • It’s from a registered Australian insurer
  • The excess is within the MLS limits
  • It’s active for the required period

You’ll pay the MLS for the portion of the financial year you were uninsured. For example, if you were uninsured for 6 months, you’ll pay roughly half of the surcharge.

The MLS is calculated using your taxable income, including:
 
  • Salary and wages
  • Bonuses and allowances
  • Investment income
  • Reportable fringe benefits

Not necessarily. Couples can be covered under:
 
  • One couples policy, or
  • Two individual policies
What matters is that each person has eligible hospital cover.

Each adult is assessed individually.
 
If you don’t have hospital cover and your income falls within the various income threshold tiers, you may be required to pay the Medicare Levy Surcharge indicated within those tiers.