The Medicare Levy Surcharge (MLS) threshold for 2025–26 is $101,000 for singles and $202,000 for couples and families. If your income exceeds this and you don’t hold eligible private hospital cover, you’ll pay an extra 1% to 1.5% of your income on top of the standard 2% Medicare Levy. Taking out qualifying hospital cover is the only way to avoid it.

What Is the Medicare Levy Surcharge Threshold?

Medicare Levy Surcharge (MLS): An additional tax imposed on Australian taxpayers whose income exceeds a set threshold and who do not hold adequate private patient hospital cover. The surcharge ranges from 1% to 1.5% of your income, depending on how much you earn.

The threshold is not based on your taxable income alone. The ATO uses a broader measure called income for MLS purposes, which includes items beyond your salary or wages (more on this below).

The MLS exists to encourage higher-income earners to use the private hospital system, easing pressure on public hospitals. It works alongside a separate incentive — the private health insurance rebate — which reduces your premiums based on your income and age.

2025–26 Medicare Levy Surcharge Thresholds and Rates

The thresholds below apply for the 2025–26 income year (1 July 2025 to 30 June 2026), as published by the Australian Taxation Office.

Singles

Base Tier: $101,000 or less — 0%

Tier 1: $101,001 – $118,000 — 1%

Tier 2: $118,001 – $158,000 — 1.25%

Tier 3: $158,001 or more — 1.5%

Families / Couples (including de facto couples and single parents)

Base Tier: $202,000 or less — 0%

Tier 1: $202,001 – $236,000 — 1%

Tier 2: $236,001 – $316,000 — 1.25%

Tier 3: $316,001 or more — 1.5%

The family income threshold increases by $1,500 for each dependent child after the first. A family with two children has a base threshold of $203,500.

2024–25 Medicare Levy Surcharge Thresholds (Previous Year)

For those lodging their 2024–25 tax return:

Base Tier — Singles: $97,000 or less | Families: $194,000 or less

Tier 1 — Singles: $97,001 – $113,000 | Families: $194,001 – $226,000

Tier 2 — Singles: $113,001 – $151,000 | Families: $226,001 – $302,000

Tier 3 — Singles: $151,001 or more | Families: $302,001 or more

The MLS rates (1%, 1.25%, 1.5%) remain the same across both years.

What Counts as Income for MLS Purposes?

Your income for MLS purposes is broader than your taxable income. It includes:

Taxable income (including trust distributions on which the trustee pays tax)

Reportable fringe benefits — employer-provided benefits like a company car or novated lease may push your MLS income above the threshold

Total net investment losses — rental property losses and financial investment losses are added back

Reportable super contributions — both reportable employer super contributions and deductible personal super contributions

If you have a spouse, your combined income for MLS purposes determines which tier applies.

Important for those with salary packaging: Reportable fringe benefits can push your MLS income above the threshold even when your base salary is under $101,000. Check your MLS income carefully if you work in a hospital, not-for-profit, or similar sector.

How Is the Medicare Levy Surcharge Calculated?

Example — Single person, Tier 1 (2025–26):

Base salary: $88,000

Reportable fringe benefits: $20,000

MLS income: $108,000 (above the $101,000 threshold)

MLS rate: 1% (Tier 1)

MLS payable: $1,080

Example — High earner, Tier 3:

Taxable income: $165,000

No private hospital cover

MLS rate: 1.5%

MLS payable: $2,475

Basic hospital cover at Tier 3 income often costs $1,500–$2,200 annually — making private health insurance the financially sensible choice.

How to Avoid Paying the Medicare Levy Surcharge

The only way to avoid the MLS is to hold appropriate private patient hospital cover for the full financial year:

The policy must be with a registered Australian health insurer

It must include hospital cover (extras-only, dental, optical, physiotherapy do NOT count)

The annual excess cannot exceed $750 for singles or $1,500 for families and couples

Overseas Visitors Cover, travel insurance, and international health cover do not qualify

Cover must be maintained for every day of the financial year

Suspension during travel: If you suspend your hospital cover while overseas, those suspended days are treated as uncovered by the ATO.

The MLS vs Private Health Insurance: Which Costs More?

Single, $102,000 income — MLS: ~$1,020 | Basic Hospital Cover: ~$980–$1,200/yr

Single, $130,000 income — MLS: ~$1,625 | Basic Hospital Cover: ~$980–$1,200/yr

Single, $165,000 income — MLS: ~$2,475 | Basic Hospital Cover: ~$980–$1,500/yr

Couple, $210,000 combined — MLS: ~$2,100 | Basic Hospital Cover: ~$1,800–$2,800/yr

At Tier 1 (just over $101,000), the difference is marginal. At Tier 2 and Tier 3, private hospital cover is almost always cheaper than paying the surcharge.

Lifetime Health Cover Loading: The Other Factor to Consider

When weighing MLS against private hospital cover, the Lifetime Health Cover (LHC) loading adds urgency — particularly if you’re approaching 31.

If you take out private hospital cover after 1 July following your 31st birthday, you’ll pay an additional 2% loading on top of your premiums for every year you delay. Wait until 41 — 20% extra. Wait until 51 — 40% extra. Maximum loading is 70%, applied for 10 consecutive years.

If basic hospital cover costs $1,200/year and you take it out at 45 (14 years after 31), your loading is 28% — $1,536/year instead of $1,200.

LHC and MLS operate independently but together create a strong financial case for taking out hospital cover before turning 31.

Who Needs to Pay the Medicare Levy Surcharge?

The MLS applies to:

Singles earning above $101,000 for MLS purposes without eligible hospital cover

Couples (married or de facto) with combined MLS income above $202,000 where either partner lacks hospital cover

Single parents — assessed under family tiers

Families — all dependants (children under 21, full-time student children under 25) must be covered

Key exception: If your family income is above the family threshold but your own personal MLS income is $27,222 or less, you are not personally liable for the MLS.

Adult dependants: A person over 21 who is not a full-time student is not a dependant for MLS purposes. If they earn above the single threshold, they need their own hospital cover.

Can You Reduce Your MLS Income?

Yes. Personal deductible super contributions — where you contribute directly to your super fund and lodge a Notice of Intent to Claim — reduce your taxable income and MLS income.

Example: If you earn $108,000 and make a $9,000 deductible personal super contribution, your taxable income drops to $99,000 — below the $101,000 threshold. MLS avoided entirely.

Note: Salary sacrifice (reportable employer super contributions) does NOT reduce your MLS income — these are added back.

See our guide on how to reduce taxable income for individuals in Australia for more strategies.

The Private Health Insurance Rebate

If you take out private hospital cover, you may be eligible for the government’s private health insurance rebate, which reduces your premiums.

For 2025–26, those under 65 in the Base Tier ($101,000 or less) receive a rebate of 24.288%. The rebate reduces at higher income tiers and reaches zero at Tier 3.

You can claim it as:

A premium reduction applied directly by your insurer

A tax offset when lodging your tax return

Medicare Levy vs Medicare Levy Surcharge

Medicare Levy: A 2% tax paid by most Australian residents to fund public healthcare, regardless of whether you have private health insurance.

Medicare Levy Surcharge: An additional 1%–1.5% tax on top of the Medicare Levy, applied only if you earn above the threshold AND don’t have adequate private hospital cover.

Example — $130,000 earner without private cover:

Medicare Levy (2%): $2,600

MLS Tier 2 (1.25%): $1,625

Total: $4,225

With qualifying hospital cover, you only pay the 2% Medicare Levy: $2,600.

What Happens If You Have Cover for Part of the Year?

The MLS is applied proportionally. For each day you were without adequate cover, a daily surcharge applies.

Example: Hospital cover for 183 days, no cover for 182 days.

183 days: MLS exempt

182 days: MLS applies

The ATO calculates this automatically from the Private Health Insurance Statement provided by your insurer.

Key Takeaways

• MLS threshold for 2025–26: $101,000 (singles) / $202,000 (families)
• Income for MLS purposes includes reportable fringe benefits, super contributions, and investment losses
• MLS rates: 1% to 1.5% across four tiers
• Only qualifying private patient hospital cover (not extras-only) avoids the surcharge
• Policy excess limits: $750 (singles) / $1,500 (families)
• Personal deductible super contributions can reduce MLS income below the threshold
• LHC loading makes early hospital cover financially smart regardless of MLS

Frequently Asked Questions

Need Help Working Out Your MLS Obligations?

Box Advisory Services can review your full income picture — including reportable fringe benefits, investment losses, and super contributions — to give you a clear answer on your MLS exposure and the most cost-effective approach.