The Medicare Levy is a 2% charge on taxable income that funds Australia’s public health system. Most Australian residents pay it, although low-income earners may qualify for a reduction or full exemption. The Medicare Levy Surcharge (MLS) is an additional levy of between 1.0% and 1.5% applied to higher-income individuals and families who do not hold an appropriate level of private hospital cover. For the 2026 income year, the MLS single income threshold is $101,000, with the family threshold set at $202,000 (increasing by $1,500 for each dependent child after the first). The MLS tiers are structured so that the surcharge rises with income: no MLS below the threshold, 1.0% in the first tier, 1.25% in the second, and 1.5% for incomes above $158,001 for singles. Basic hospital cover is frequently less expensive than paying the MLS, which is the policy mechanism designed to encourage private health participation among higher earners. This article sets out the 2026 thresholds, rates, and exemption rules, and explains how the MLS interacts with income tax and HELP repayments. See also Australia’s 2026–27 income tax rates and HELP/HECS repayment thresholds.
Medicare Levy: the standard 2%
The Medicare Levy is calculated as 2% of taxable income on an individual’s tax return. It is not a separate payment or billing — it is assessed and collected as part of the annual income tax assessment process. The levy applies to most Australian residents for tax purposes. Certain categories of individuals are exempt, including those who are not entitled to Medicare benefits (such as visitors on certain visas) and members of the Australian Defence Force who receive full free medical treatment.
Low-income earners may receive a reduction or full exemption from the Medicare Levy. The ATO applies a phase-in range: taxpayers below a lower threshold pay no Medicare Levy, and those between the lower and upper thresholds pay a reduced amount. The exact thresholds vary by family circumstance and are updated annually. Individuals who qualify for the exemption should confirm the current-year thresholds on the ATO website or through their tax return preparation.
Medicare Levy Surcharge: income tiers for 2026
The MLS applies to taxpayers who earn above the relevant income threshold and do not maintain an appropriate level of private patient hospital cover for the full income year. The thresholds and rates for singles in the 2026 income year are:
- Income $101,000 or below: no surcharge.
- Income $101,001 to $118,000: MLS of 1.0% of taxable income.
- Income $118,001 to $158,000: MLS of 1.25% of taxable income.
- Income $158,001 and above: MLS of 1.5% of taxable income.
For families, the threshold is $202,000, with an additional $1,500 added for each dependent child beyond the first. A family is defined as a taxpayer with a spouse (married or de facto) or a single parent with dependent children. The MLS is assessed against the combined income of both partners, and if either partner does not have appropriate hospital cover, the surcharge applies to both.
What counts as appropriate private hospital cover
To avoid the MLS, a policy must be a complying hospital policy registered under the Private Health Insurance Act. Extras-only cover, ambulance-only cover, and overseas visitor cover do not qualify. The policy must be held with a registered Australian health insurer. The cover must be maintained for the full income year; if cover is taken out part-way through the year, the MLS applies on a pro-rata basis for the days without cover.
The policy does not need to include extras (such as dental or optical), nor does it need to be a top-tier gold policy. A basic hospital policy that meets the minimum legislative requirements is sufficient to avoid the MLS entirely. Many basic hospital policies cost less annually than the MLS would charge a person earning above the threshold, which is the deliberate economic incentive built into the system.
Financial impact: MLS versus hospital cover
The MLS is calculated on total taxable income, so the dollar cost scales with earnings. A single person earning $125,000 without hospital cover would pay an MLS of $1,562.50 (1.25% of $125,000). The same person on $175,000 would pay $2,625 (1.5%). By comparison, a basic hospital policy can often be obtained for well under $1,500 per year, depending on the insurer and the excess chosen.
The decision is not purely financial. Basic hospital cover also provides access to private hospital treatment and avoids public hospital waiting lists for elective procedures. Individuals should weigh the cost of premiums against both the MLS cost and the value of the health coverage itself. Licensed consultants can provide personalised comparisons; Arrivau’s team of licensed professionals is available to discuss individual circumstances within one business day.
MLS and the Lifetime Health Cover loading
Separate from the MLS is the Lifetime Health Cover (LHC) loading. This is a loading on top of hospital premiums that applies to people who take out hospital cover after their 31st birthday (or after 1 July following their 31st birthday for those born before 1 July 1934). The LHC loading starts at 2% and increases by 2% for each year without cover, up to a maximum of 70%. Unlike the MLS, the LHC loading is not avoidable once triggered and persists for 10 years of continuous hospital cover. The MLS and LHC are independent policies: avoiding the MLS by purchasing hospital cover also prevents the LHC loading from accumulating, but they operate under separate legislative frameworks.
Frequently asked questions
Is the Medicare Levy deducted from my pay? Yes, in most cases. Employers typically include the Medicare Levy in PAYG withholding calculations, so the levy is collected progressively through the year rather than as a lump sum at tax time.
What if my spouse earns below the threshold but I earn above it? The MLS is assessed on combined family income. If the combined income exceeds the family threshold and either partner lacks hospital cover, both are liable for the surcharge on their individual taxable incomes.
Can I claim the MLS as a tax deduction? No. The Medicare Levy Surcharge is not a deductible expense. It is an additional levy assessed through the tax system.
Do I pay the MLS if I have overseas visitor health cover? Overseas visitor cover is not complying hospital cover for MLS purposes. Individuals on temporary visas who hold overseas visitor cover are generally not eligible for Medicare and therefore do not pay the Medicare Levy or MLS at all.
What happens if I cancel my hospital cover mid-year? The MLS will apply on a pro-rata basis for the number of days in the income year that you did not hold appropriate cover. The ATO calculates this based on the start and end dates reported by your health insurer.
Data sources
- ATO Medicare Levy and Medicare Levy Surcharge guidance
- Services Australia Medicare program information
- Private Health Insurance Act 2007 and regulations
- Private Health Insurance Ombudsman consumer information
- ATO income tests for MLS family thresholds
Disclaimer: This article provides general information only and does not constitute financial, tax, or legal advice. Readers should confirm current rates and thresholds with the Australian Taxation Office or a licensed professional before making decisions. Data current as at July 2026.