The Medicare Levy Surcharge (MLS) is a levy paid by Australian taxpayers who do not have private hospital cover and who earn above a certain income. This additional surcharge is imposed on those who do not meet specific health insurance criteria.

Most Australian taxpayers pay the standard Medicare Levy, which is 2% of their income, but the MLS is calculated at the rate of 1% to 1.5% of your income for Medicare Levy Surcharge purposes. The MLS is assessed at tax time based on your income level and whether you hold private hospital cover.

The surcharge aims to encourage individuals to take out private hospital cover and reduce the demand on the public health system. The Medicare Levy Surcharge is in addition to the standard Medicare Levy of 2%, which is paid by most Australian taxpayers. By doing so, the surcharge aims to ease the burden on Australia’s public health system, Medicare.

If you’re a taxpayer in Australia, understanding the MLS thresholds and how they impact your finances is essential.

This guide will walk you through everything you need to know about the Medicare Levy Surcharge, including income thresholds, how the surcharge is calculated, and ways to avoid paying it.

What Is the Medicare Levy Surcharge?

The Medicare Levy Surcharge is an additional tax that applies to individuals and families whose MLS income exceeds the MLS income threshold and who do not have private patient hospital cover. The surcharge is based on your MLS income and the specific MLS income threshold set for singles and families, including considerations for dependents.

The surcharge is calculated as a percentage of your income for Medicare Levy Surcharge purposes, known as the MLS rate, and ranges from 1% to 1.5%, depending on your income level. These MLS rates are determined by the government and apply to different MLS income thresholds for various tax years. This is in addition to the standard 2% Medicare Levy that most taxpayers already pay.

The MLS is assessed at tax time based on your income level and whether you hold private patient hospital cover. Holding adequate private patient hospital cover is necessary to avoid paying the Medicare Levy Surcharge if your income exceeds the relevant threshold. The Medicare Levy is collected similarly to income tax through employer withholdings and is assessed when filing income tax returns.

Who Needs to Pay the Medicare Levy Surcharge?

The Medicare Levy Surcharge (MLS) applies to singles, couples, and families—including de facto couples and single parents—based on their combined income. The surcharge is determined by your household type and whether you, your partner, and all dependents are covered under an appropriate family hospital policy. De facto couples are subject to the same income thresholds as married couples, and single parents are also subject to family tiers and thresholds. If your partner or one of your dependents is not covered under a family hospital policy, you will pay the surcharge.

These income thresholds are updated annually, so it’s important to stay informed about any changes.

For the 2025–26 income year, the income thresholds are as follows:

Income Tier	Singles	Families	Surcharge Rate
Base Tier	$101,000 or less	$202,000 or less	0%
Tier 1	$101,001 – $118,000	$202,001 – $236,000	1%
Tier 2	$118,001 – $158,000	$236,001 – $316,000	1.25%
Tier 3	$158,001 or more	$316,001 or more	1.5%

For the 2024–25 income year:

• Single income threshold: $97,000 or less
• Family income threshold: $194,000 or less

For the 2023–24 income year:

• Single income threshold: $93,000 or less
• Family income threshold: $186,000 or less

Family tiers apply to families, including de facto couples and single parents. The family income threshold is increased by $1,500 for each MLS dependent child after the first child. This means the income threshold is increased by 1,500 for every additional mls dependent child beyond the first child.

For example, a family with two children will have a threshold of $202,000 before the MLS kicks in. If you have three children, the threshold is increased by 1,500 to $203,500, and so on for each additional MLS dependent child after the first child.

Understanding these thresholds is crucial for high-income earners to plan their finances and avoid unexpected tax liabilities. If your combined income is close to these thresholds, consider taking out private hospital cover for your entire family under a family hospital policy to avoid the surcharge.

How Is Your Income for MLS Purposes Calculated?

Your mls income for MLS purposes includes more than just your taxable income. The Australian Taxation Office (ATO) uses a broader definition of income, known as mls income, when determining whether you’re liable for the surcharge. This includes:

• Taxable income
• Reportable fringe benefits
• Superannuation contributions
• Any amount on which family trust distribution tax has been paid

Your income for MLS purposes (mls income) is the sum of your taxable income, reportable fringe benefits, and superannuation contributions.

All these components are added together to calculate your total income for MLS purposes. If this total exceeds the relevant threshold based on your situation (single or family), you may need to pay the surcharge.

How Can You Avoid Paying the Medicare Levy Surcharge?

Taking out private hospital cover that provides an appropriate level of private patient hospital cover is the main way to avoid the Medicare Levy Surcharge if your income is above the required threshold.

Here’s what you need to know about getting coverage:

• The policy must be with a registered health insurer.
• The policy must provide an appropriate level of private patient hospital cover.
• The excess on your policy should not exceed $750 for singles or $1,500 for families.
• You need to hold appropriate private hospital cover for the entire financial year if you want to be fully exempt and avoid paying any part of the surcharge. If you maintain appropriate private hospital cover throughout the financial year, you can avoid paying the MLS entirely.

If you only hold hospital cover for part of the year (for example, six months), you’ll receive a partial exemption from paying the surcharge. This means you’ll only be exempt during the period you had cover, and may need to pay the MLS for any months where you didn’t have coverage, as the surcharge will apply proportionally for the uncovered period.

Benefits of Private Health Insurance

While private health insurance comes with its own costs (monthly premiums), you may be eligible for a private health insurance rebate, which can reduce the cost of your premiums depending on your income and family status. Private health insurance could also save you money in taxes if you’re a higher-income earner. For example:

• A single person earning over $151,000 without private hospital cover could end up paying an extra $2,265 in taxes due to the MLS. In this scenario, the individual pays the Medicare Levy Surcharge unless they have eligible hospital cover.

You can avoid paying this additional tax by taking out appropriate hospital cover before reaching these thresholds. Consulting a financial adviser can help you understand your options for avoiding or reducing the Medicare Levy Surcharge based on your income and health coverage situation.

Why Does the Government Charge This Surcharge?

The Medicare Levy Surcharge was introduced as a way to encourage higher-income earners to take out private health insurance. By doing so, more people use private hospitals instead of relying solely on public hospitals.

This helps reduce pressure on Australia’s public healthcare system and ensures that resources are available as much as possible.

Key Takeaways

Understanding how the Medicare Levy Surcharge works can help you make informed decisions about your health insurance and tax obligations. Here are some key points:

• The MLS only applies if your income exceeds certain thresholds ($97,000 for singles or $194,000 for families).
• The surcharge ranges from 1% to 1.5%, depending on your income tier.
• The surcharge is assessed when you lodge your tax return.
• You can avoid paying it by taking out an approved private hospital insurance policy.

FAQs

What happens if I only have private health insurance for part of the year?

If you had private hospital cover for only part of the financial year (for example, six months), you may be eligible for a partial exemption from the Medicare Levy Surcharge. This means you’ll only be exempt from paying the surcharge during the period you held hospital cover, and you’ll still need to pay it proportionally for any months where you didn’t have coverage.

Does my family’s income affect my MLS?

Yes, if you’re part of a family, couple, or de facto couple, and your combined income exceeds the Medicare surcharge threshold (currently $202,000 for families), you’ll be subject to the Medicare Levy Surcharge (MLS) unless all members are covered under a family hospital policy. Family tiers apply, meaning the threshold increases for each additional child after the first. Couples, including de facto couples, are subject to these family income thresholds. If your partner or one of your dependents is not covered by the family hospital policy, you will pay the surcharge.

What is considered “income for MLS purposes”?

Your MLS income for Medicare Levy Surcharge (MLS) purposes includes your taxable income, plus reportable fringe benefits and superannuation contributions. This MLS income total determines whether you’re liable for the surcharge and at what rate.

Can I get an exemption from paying MLS?

You can avoid paying MLS entirely if you maintain an appropriate level of private hospital cover throughout the financial year. The Medicare Levy Surcharge only applies if you do not have a policy that provides this appropriate level of private patient hospital cover. There are no exemptions based on age or other factors unless you’re exempt from paying Medicare itself due to specific circumstances like low income.