Tax·Pillar guide

The Complete Australian Guide to the Medicare Levy Surcharge (2025–26)

What the MLS is, who actually pays it, how it is calculated, and the eight rules you need to get right to avoid it.

Victor Mourad

Co-Founder, Comparify

Published 30 June 2026

Last reviewed 30 June 2026

14 min read

The Medicare Levy Surcharge (MLS) is an extra tax of 1% to 1.5% paid by higher-income Australians who do not hold qualifying private hospital cover.

It applies on top of the standard 2% Medicare Levy. For 2025–26, the surcharge kicks in once your income for MLS purposes is above $101,000 for singles or $202,000 combined for families. The whole point of it is to push higher earners off the public hospital system and into private cover.

Most guides on the internet stop there. This one keeps going — because the calculation, the exemptions, and the definition of "qualifying cover" are all stricter than they look, and most Australians who pay the MLS pay more than they need to.

What the Medicare Levy Surcharge actually is

Australia runs a hybrid healthcare system. Medicare — the universal public scheme — is paid for largely through the 2% Medicare Levy on most taxpayers' income. Private hospital cover is optional, but the government wants higher earners to take it up to relieve demand on public hospitals.

The Medicare Levy Surcharge is the financial stick that pushes them in that direction. It is a separate tax, charged on top of the standard 2% Medicare Levy, paid only by people who:

• Earn above a defined income threshold, and
• Do not hold an appropriate level of private hospital cover for the period in question.

If you hold qualifying hospital cover for the entire financial year, you do not pay the MLS, regardless of your income. If you do not hold qualifying cover and you earn above the threshold, you pay it on every day you were uninsured.

The MLS has existed in its current tiered form since 1 July 2012. Before that, it was a flat 1% surcharge. The tiers now run 1%, 1.25%, and 1.5%, increasing with income.

The 2025–26 Medicare Levy Surcharge thresholds

These are the thresholds that apply for the 2025–26 financial year — i.e. the year ending 30 June 2026. Income is your income for MLS purposes (see the section below on how that is calculated).

The 2026–27 thresholds — already announced

From 1 July 2026, the thresholds are indexed upward. If you are reading this in the first half of 2026, the change is imminent and worth knowing in advance — particularly if you sit just above the current threshold.

The thresholds had been frozen from 2015–16 to 2022–23, which dragged a large number of middle-income earners into the surcharge as wages grew. From 2023–24 they have been indexed annually. The increase for 2026–27 means a Tier 1 single will need to earn $4,000 more before the MLS applies.

How the Medicare Levy Surcharge is calculated

Two figures matter, and the ATO treats them differently.

1. Income for MLS purposes — the figure that determines your tier

This is the broader of the two. Income for MLS purposes is not the same as taxable income. It is taxable income plus a stack of add-backs designed to prevent income-shifting:

• Taxable income — the standard figure from your tax return.
• Reportable fringe benefits — things like a salary-packaged car, school fees, or accommodation that appear on your income statement.
• Reportable superannuation contributions — salary-sacrificed super and personal deductible super contributions, above the standard employer guarantee.
• Net investment losses — including negative gearing losses on rental properties or shares, added back to income.
• Exempt foreign employment income — in narrow cases where you earn income overseas that is otherwise exempt.

For couples, both partners' income for MLS purposes is combined, even if they lodge separately. This is why family-income thresholds exist.

2. Taxable income plus reportable fringe benefits — the figure the rate is applied to

Once your income for MLS purposes places you in a tier, the actual surcharge payable is calculated on a slightly narrower base: your taxable income plus your reportable fringe benefits. Reportable super contributions and net investment losses are added back to determine your tier, but the surcharge itself is not levied on them.

Worked example: the PAYG earner who didn't see it coming

Aisha is 34, single, no dependants. Her gross salary for 2025–26 is $96,000. She salary-sacrifices $14,000 to super. She negatively gears a one-bedroom apartment in Brunswick, generating a $9,000 net rental loss. She has no fringe benefits.

Her taxable income: $96,000 minus salary-sacrificed super ($14,000) minus rental loss ($9,000) = $73,000.

Her income for MLS purposes: $73,000 + $14,000 reportable super + $9,000 net investment loss = $96,000.

In this case, Aisha is below the MLS threshold and pays nothing. Now change one variable: lift her base salary to $110,000. Her taxable income is now $87,000 — under the threshold. Her income for MLS purposes is $110,000 — firmly in Tier 1. She pays MLS at 1% on her taxable income plus reportable fringe benefits ($87,000 × 1% = $870), even though her assessable income looked safe.

What "appropriate hospital cover" actually means

This is where it gets strict. The ATO and the Department of Health treat "appropriate cover" as a defined product, not a feeling. To exempt you from the MLS, the policy must meet every one of the following conditions:

1. It must be hospital cover. Extras cover alone — no matter how comprehensive — does not exempt you. Combined hospital and extras policies are fine, because they include hospital cover.
2. It must be with a registered Australian health insurer. Overseas Visitors Cover, Overseas Student Health Cover, and policies with non-registered international insurers do not qualify.
3. The excess cannot exceed $750 for singles or $1,500 for couples and families. This is a total annual excess limit, not per claim — even if you make multiple claims in the year, the total excess paid by you cannot exceed those figures.
4. It must be held for the entire period you wish to exempt. Days uninsured are days the surcharge applies. Suspending cover for travel does not pause the surcharge — suspended days count as uninsured.
5. It must cover everyone in the family. If you are claiming the family threshold, your spouse and all eligible dependants must be on the policy. One uninsured dependant means the whole family pays the surcharge.

The four types of cover that do not exempt you

• Extras-only cover — for dental, optical, physio, and so on.
• Overseas Visitors Health Cover (OVHC) — even if it is comprehensive.
• Overseas Student Health Cover (OSHC) — covers students on visas but is not MLS-qualifying.
• Policies held with non-registered international insurers — even branded health insurance products from major global carriers may not count if they are not registered with APRA in Australia.

Who is exempt from the Medicare Levy Surcharge

A small group of people are exempt from the MLS even if they do not hold private hospital cover and earn above the threshold:

• Low-income earners whose total family income is above the family threshold but whose individual income for MLS purposes is below the singles threshold ($23,365 in 2025–26 — i.e. the standard Medicare Levy low-income threshold).
• Prescribed persons with no dependants. This narrow category includes blind pensioners, recipients of certain veterans' pensions, residents of Norfolk Island prior to certain dates, and members of religious orders that include a vow of poverty.
• Permanent members of the Australian Defence Force on continuous full-time service, whose medical services are provided by the ADF.
• Foreign residents who are in Australia for less than half the income year — but only in narrow circumstances, and Australian-source income may still attract the surcharge.
• Holders of a Department of Veterans' Affairs Gold Card — treated as having hospital cover.

Reciprocal healthcare agreement countries (the UK, New Zealand, Ireland, Italy, Sweden, the Netherlands, Belgium, Finland, Norway, Slovenia, and Malta) entitle visitors to public Medicare benefits but do not exempt them from the MLS if they earn above the threshold. To avoid the surcharge, they still need to hold an approved Australian hospital policy.

Six expensive mistakes Australians make on the MLS

These are the mistakes we see in policy data and tax-return reviews over and over again.

1. Holding extras-only cover and thinking it counts

It does not. Extras cover does not exempt you. If you are above the threshold and you only have dental or optical cover, you are paying twice — for the extras you wanted and for the surcharge you assumed you had avoided.

2. Buying a hospital policy with too high an excess

Some "public hospital only" policies are marketed cheaply but have excess levels above $750 single / $1,500 couples. They do not qualify for the MLS exemption. Always check the excess before assuming a policy will exempt you.

3. Holding cover in your name, but not for your spouse

If you earn above the family threshold but your partner is not on a hospital policy, you both pay the surcharge as if uninsured. This catches couples where one is on an employer-subsidised policy with single cover.

4. Adult children on the family policy who are not actually dependants

Once a child turns 21 and is not a full-time student, they stop being a dependant for MLS purposes — even if they are still on your family policy. If they themselves earn over the singles threshold, they will personally owe the MLS unless they take out their own policy. The family policy does not exempt an adult non-student child.

5. Letting cover lapse in a gap between insurers

If you switch insurers but let the old policy lapse before the new one starts, the days in between count as uninsured for both MLS and Lifetime Health Cover purposes. Always keep the old policy running until the new one is active.

6. Forgetting that net investment losses count toward income for MLS purposes

Negative gearing is a tax planning tool — but for MLS, the losses are added back. A high-income earner who has "taxable income" below the threshold because of investment losses can still be in Tier 2 or Tier 3 for the surcharge.

Should you buy hospital cover just to avoid the MLS?

This is the only question that actually matters, and almost no comparison site will give you a straight answer to it. We will.

The honest answer: not always. The MLS scales with income but basic qualifying hospital cover is roughly flat in price. There is a band of income — typically just above the threshold — where paying the surcharge is cheaper than buying the cheapest qualifying policy. Below the threshold and at the top of Tier 3, the maths is clear. In the middle, it depends.

The break-even logic

Take a 33-year-old single earning $103,000.

• MLS payable for the year: $103,000 × 1% = $1,030.
• Cheapest qualifying basic hospital policy: approximately $1,000 – $1,400 per year, depending on state and excess.
• Net of the private health insurance rebate (approximately 24.6% for this age and income), the policy may cost $750 – $1,050 per year out of pocket.

In this case, the cheapest qualifying policy may be a few hundred dollars cheaper than the MLS — and the policy provides actual hospital cover, where the MLS provides nothing but a receipt. The decision is close, but on a strictly financial basis the policy wins.

Now take the same person earning $160,000.

• MLS payable: $160,000 × 1.25% = $2,000.
• Cheapest qualifying basic hospital policy (net of rebate): $750 – $1,200.

Here the policy is dramatically cheaper than the surcharge. There is no rational case for paying the MLS in Tier 2 or Tier 3.

Timing: when to take out cover to avoid the MLS this year

The MLS is calculated daily. If you take out qualifying cover partway through the year, you only owe the surcharge for the days you were uninsured.

Practically:

• If you join now and hold cover through 30 June, you owe the MLS only for the days from 1 July of the current financial year up to your join date.
• If you have held cover all year but cancelled it mid-year, you owe the MLS for the days after cancellation.
• If you join on 30 June, you owe the MLS for 364 days of the year. The MLS is not pro-rated to the calendar year — a one-day policy at the end of the financial year does not exempt you.

There is no benefit to delaying. If you know you will need cover to avoid the surcharge, every day uninsured is a day you pay it.

How the MLS interacts with other private health insurance rules

Lifetime Health Cover loading

Different rules, same goal. Lifetime Health Cover (LHC) loading penalises Australians who take out their first hospital cover after 1 July following their 31st birthday — adding 2% to their premium for every year they delayed, up to 70%. The MLS penalises higher earners year-on-year via the tax return. You can be liable for both at the same time.

See our full guide to Lifetime Health Cover loading for the mechanics, exemptions, and the asymmetric cost of waiting.

The Private Health Insurance Rebate

The rebate is the carrot. The MLS is the stick. The rebate reduces the effective price of private hospital cover for most Australians, tiered by income. If you are buying hospital cover specifically to exempt yourself from the MLS, the rebate will reduce the net cost — but the rebate tapers to zero as your income rises, exactly when the MLS bites hardest.

The hospital tier framework

Hospital cover in Australia is classified as Basic, Bronze, Silver, or Gold under a government framework introduced in 2019. Any tier exempts you from the MLS, provided it meets the excess limit. The cheapest qualifying option will almost always be a Basic or basic-tier Bronze policy with the maximum permitted excess.

See our guide to the hospital cover tiers for what each tier actually covers and whether you need anything above Basic.

What to do if you are paying the MLS now

If you have just realised you have been paying the surcharge, you have three options. None of them are particularly hard, but the order matters.

1. Run the MLS Calculator first. Confirm what you are actually paying — the surcharge is often higher than people estimate because they forget to include reportable super, fringe benefits, and net investment losses.
2. Compare hospital cover policies. Filter for policies with excess of $750 or less (singles) or $1,500 or less (couples and families). The cheapest qualifying basic policies are usually 30–60% cheaper than what people end up choosing.
3. Take out cover now, not at the start of the next financial year. Every day uninsured is a day you pay the MLS. If the cheaper option is the policy, take it now and stop the daily clock.

For a deeper checklist, read the five rules you need to get right to avoid the MLS.

When paying the MLS is still the right call

Three scenarios where, on the maths, the surcharge can still be the rational choice:

• You are just over Tier 1 (say $101,500–$103,000 single) and the cheapest qualifying policy in your state is genuinely more expensive than the MLS once you net out the rebate.
• You are about to leave Australia for an extended period — your MLS liability is prorated, and a partial-year policy may cost more than the surcharge for the months you are in-country.
• You are a young high earner in a city with strong access to public hospitals and you genuinely will not use the cover. The MLS is a guaranteed cost; cover is an insurance product whose value depends on use. If you will not use it and you are in the lowest MLS tier, paying the surcharge is not irrational.

These are minority cases. For the typical Tier 1 or Tier 2 earner, the maths comes out in favour of qualifying hospital cover.

A note on what this guide is not

This guide is intended as general consumer information. It is not personal financial, tax, or legal advice. The Medicare Levy Surcharge interacts with negative gearing, salary packaging, capital gains, dependant rules, and superannuation strategy in ways that are sometimes counter-intuitive — and the right answer for your circumstances may depend on factors not covered here.

If your income is close to a threshold, you have variable income from year to year, you are in a blended family with complex dependant arrangements, or you are an Australian tax resident with foreign-source income, speak to a registered tax agent or financial adviser. The cost of a one-off conversation is usually less than the cost of getting the MLS wrong for a single year.

About the author

Victor Mourad

Co-Founder, Comparify

Victor co-founded Comparify to make Australian private health insurance genuinely easy to compare — no upsells, no inflated premiums, no jargon.

He's spent his career inside health funds and insurtech, and writes Comparify's guides to help everyday Australians make confident decisions about their cover.

Get in touch: victor@comparify.au