Medicare Levy Surcharge 2025–26: How to Avoid It and What It Actually Costs

What Is the Medicare Levy Surcharge?

The Medicare Levy Surcharge (MLS) is an additional tax imposed on higher-income Australians who do not hold an appropriate level of private hospital insurance. It was introduced to encourage higher earners to take out private cover, reducing demand on the public hospital system.

The MLS is separate from — and in addition to — the standard 2% Medicare levy that most taxpayers pay. If you are a high-income earner without private hospital cover, you could be paying both the standard 2% levy and the MLS of up to 1.5% on top.

2025–26 Income Thresholds and MLS Rates

The MLS applies on a sliding scale based on your income for MLS purposes. The thresholds differ for singles and families/couples.

Singles

Families and Couples (combined income)

Family thresholds increase by $1,500 for each dependent child after the first. Thresholds are indexed periodically — always check ato.gov.au for current figures.

MLS vs the Standard Medicare Levy — Key Differences

How to Avoid the Medicare Levy Surcharge

There is one straightforward way to avoid the MLS entirely: hold an appropriate level of private hospital cover for the entire income year (or the relevant portion of it, with the surcharge applying proportionally for any days without cover).

What Counts as "Appropriate" Cover?

To avoid the MLS, your private health insurance policy must:

• Include hospital cover (extras-only policies do NOT count)
• Have an excess of $750 or less for singles, or $1,500 or less for couples/families
• Be provided by a registered health insurer

Cost Comparison: Paying the MLS vs Private Health Insurance

For many people in the lower MLS income brackets, the cost of basic private hospital cover is similar to or cheaper than the surcharge itself — making private cover the financially sensible choice, independent of any health benefits.

Worked Example: Single Person Earning $100,000

In this example, a basic hospital policy may cost roughly the same as the surcharge — but you receive actual health insurance benefits (emergency cover, choice of doctor in some cases, shorter waiting periods) instead of simply paying a tax with no direct benefit.

Worked Example: Couple Earning $250,000 Combined

How Is "Income for MLS Purposes" Calculated?

Your income for MLS purposes is not simply your taxable income. It is calculated as:

Taxable income + reportable fringe benefits + total net investment losses + reportable super contributions + exempt foreign employment income

This broader definition catches some people by surprise. For example, salary sacrificing into super reduces your taxable income but reportable employer super contributions are added back for MLS purposes, meaning salary sacrifice alone won't help you dodge the surcharge if you're near the threshold.

Common Traps That Catch People Out

1. Extras-only cover doesn't count — Many people have "extras" cover (dental, optical, physio) without realising it does nothing to avoid the MLS. You need hospital cover specifically.
2. Excess too high — If your policy has an excess above $750 (single) or $1,500 (couple/family), it may not satisfy MLS requirements even though it includes hospital cover.
3. Partial year cover — If you only held cover for part of the year, the MLS applies proportionally to the days you were uncovered, not the whole year exemption you might expect.
4. Combined family income surprises — Couples often calculate individually and miss that the combined threshold applies, leading to unexpected MLS liability at tax time.
5. Forgetting bonus/overtime pushes you over — A one-off bonus or significant overtime can push you over the threshold for that year, even if your base salary normally sits below it.