Medicare Levy Surcharge Threshold 2025-26: Income Tiers & Complete Guide

If your income sits above $93,000 as a single person — and you don't have an eligible private hospital cover policy — you're paying the Medicare Levy Surcharge on top of the standard 2% Medicare Levy. That's the short version. The longer version involves income tiers, family thresholds, rebates, and a surprising number of ways to accidentally stay in a surcharge tier you thought you'd avoided.

Key Takeaways

• The 2025-26 MLS threshold for singles is $93,000 — earn a dollar above it without private hospital cover and the surcharge kicks in
• There are three tiers: 1.0% (Tier 1), 1.25% (Tier 2), and 1.5% (Tier 3), each based on income ranges
• The surcharge applies to your income for MLS purposes — not just your salary, and this catches a lot of people out
• Holding an eligible private hospital cover policy exempts you from the surcharge entirely, regardless of income
• Couples and families have a shared threshold of $186,000 — but each person's surcharge rate is calculated individually

What Is the Medicare Levy Surcharge?

The Medicare Levy Surcharge (MLS) is an additional tax charged on top of the standard 2% Medicare Levy. The government introduced it to encourage higher-income earners to take out private hospital insurance — the idea being that if you're earning enough to afford it, you should contribute to easing pressure on the public system.

So you're not choosing between the Medicare Levy and the MLS. You pay the Medicare Levy regardless (unless you're exempt). The MLS is a separate, additional charge that only applies when you earn above the threshold and don't hold qualifying private hospital cover.

The Difference Between the Medicare Levy and the MLS

This trips people up constantly. Here's the distinction:

• Medicare Levy: 2% of taxable income, paid by most Australian taxpayers. Goes toward funding Medicare.
• Medicare Levy Surcharge: An extra 1.0%–1.5% on top, applied only to higher-income earners without private hospital cover.

If you earn $120,000 and have no private cover, you're paying 2% + 1.25% = 3.25% total in Medicare-related levies.

2025-26 Medicare Levy Surcharge Thresholds and Tiers

The thresholds for 2025-26 are unchanged from the prior year. Here's how the tiers break down for individuals.

MLS Income Tiers for Singles — 2025-26

MLS Income Thresholds for Families and Couples — 2025-26

If you're in a couple or have dependants, a different threshold structure applies. The family income threshold is $186,000 — but there's a catch.

Here's the catch most people don't realise: the family threshold determines whether the surcharge applies, but each person's actual MLS rate is calculated individually based on their own income. So two partners can be in different tiers — or one might be exempt entirely if their personal income is under $93,000.

How Your Income Is Calculated for MLS Purposes

The ATO doesn't just use your salary to work out if you owe the MLS. They use a broader measure called income for MLS purposes, and it often comes out higher than what you'd expect.

What Counts as Income for MLS Purposes

Your income for MLS purposes includes:

• Taxable income (salary, wages, rental income, investment income)
• Reportable fringe benefits (shown on your income statement — company car, health insurance paid by employer, etc.)
• Total net investment loss — if you've negatively geared a property, that loss is added back in
• Reportable employer super contributions — any salary sacrificed super above the super guarantee rate
• Exempt foreign employment income

So someone earning $85,000 in salary who also salary-sacrifices $10,000 to super could easily have an MLS income of $95,000 — straight into Tier 1 territory. And they might not realise it until their tax return comes back.

What Counts as Eligible Private Hospital Cover?

This is arguably the most important part. Having any private health insurance doesn't exempt you from the MLS. It has to be an eligible private hospital cover policy from a registered Australian health insurer.

Requirements for an Eligible Policy

• Must be hospital cover — extras-only policies don't count
• The policy's excess must be $750 or less for singles ($1,500 or less for families)
• Must be held with an Australian Registered Health Insurer (ARHI)
• The policy must cover you for in-hospital treatment in Australia

So if you took out a cheap extras-only policy thinking that'd cover you — it doesn't. And if your hospital policy has an excess above $750, you're still liable for the surcharge. Worth checking before EOFY.

Which Health Insurance Products Don't Qualify?

• Extras-only policies
• Overseas visitor health cover (OVHC)
• Overseas student health cover (OSHC)
• International travel insurance
• Hospital policies with an excess above $750 (singles) or $1,500 (families)

Calculating What the MLS Actually Costs You

Numbers make this clearer. Let's look at what the surcharge actually adds up to at different income levels.

MLS Cost Examples for Singles — 2025-26

The MLS applies to your entire income for MLS purposes — not just the portion above each tier threshold. So crossing from $108,000 to $108,001 means the full 1.25% applies to all $108,001, not just the $1 over the Tier 1 ceiling.

That's very different from how income tax brackets work — and it means there are income ranges where buying private hospital cover can actually save you more than the premium costs. Use the Medicare Levy Surcharge Calculator to see exactly which tier you land in and what it costs you.

The Private Health Insurance Rebate: Offsetting Your Premiums

The government doesn't just penalise you for not having private health insurance — it also subsidises you for having it. The Private Health Insurance Rebate reduces your premium costs, and higher-income earners receive a lower rebate.

2025-26 Private Health Insurance Rebate Rates

The rebate is income-tested, using the same tier thresholds as the MLS.

So if your income puts you in Tier 3 — above $144,000 — you get zero rebate and you pay the highest MLS rate. That's the combination that makes buying private hospital cover most financially compelling.

You can claim the rebate either as a premium reduction (paid upfront by your insurer reducing your policy cost) or as a refundable tax offset when you lodge your return. Most people take it as a premium reduction.

Is It Worth Getting Private Hospital Cover Just to Avoid the MLS?

This is the calculation worth doing before every financial year. And the answer depends on your income tier.

The Break-Even Analysis

At Tier 1 ($93,001–$108,000), the MLS costs you 1.0% of your income. For someone earning $100,000, that's $1,000 a year. A basic private hospital cover policy for a single person can start around $1,000–$1,500 annually — sometimes less with the rebate applied.

At Tier 2 and Tier 3, the numbers tilt even more toward cover making financial sense. $2,000–$3,000 in MLS annually covers a solid mid-tier hospital policy with room to spare.

But the rebate changes the maths. At the Base tier (income under $93,000), you get the highest rebate — bringing your effective premium cost down meaningfully. And if you're above $144,000 (Tier 3), you get no rebate, but the MLS hit is also the biggest.

What a Real Comparison Looks Like

For a 35-year-old single on $120,000:

• MLS without cover: $120,000 × 1.25% = $1,500 per year
• Basic hospital cover: roughly $1,100–$1,600/year before Tier 2 rebate (8.2% off)
• After rebate on $1,400 premium: ~$1,285 net

In this case, taking the cover is roughly break-even — and you also get actual hospital cover benefits. For many people at this income level, cover is the better call financially.

The Medicare Levy Surcharge and PAYG Withholding

Your employer doesn't automatically account for the MLS in your regular PAYG withholding — at least not precisely. They can only work from the information on your Tax File Number Declaration.

What Your Employer Can and Can't Do

If you've advised your employer that you have private hospital cover, they'll reduce your withholding accordingly. But they don't see your actual policy details — they take your word for it.

The real reconciliation happens when you lodge your tax return. If your cover lapsed during the year — or you didn't have it for the full year — the ATO will apply the MLS proportionally based on the number of days you were without cover.

Proportional MLS: When You Had Cover for Part of the Year

The MLS isn't all-or-nothing within a financial year. If you had eligible hospital cover for, say, 180 days and were without it for the other 185 days, you only pay the surcharge for the 185 days without cover. The calculation looks like this:

(Annual MLS amount) × (days without cover ÷ 365)

So a mid-year policy purchase can still reduce your MLS bill for that year. Even picking up cover in March or April before the 30 June deadline reduces your exposure for around 90 days.

Who Is Exempt from the Medicare Levy Surcharge?

The MLS doesn't apply to everyone who earns above $93,000. There are several exemption categories.

Full MLS Exemption Categories

• Eligible private hospital cover holders — the main exemption
• Norfolk Island residents — exempt from Medicare Levy and MLS
• Foreign residents — generally exempt from the Medicare Levy (and therefore MLS)
• People with a Medicare Levy exemption — if you're exempt from the Medicare Levy itself, you can't be charged the MLS either
• Certain prescribed persons — including some visa holders and people covered by other healthcare arrangements

Partial Exemptions and Pro-Rata Situations

If you were an Australian resident for only part of the year, or your cover lapsed partway through, the ATO applies the MLS on a proportional basis rather than the full annual amount. This also applies if you were in hospital for extended periods under certain conditions.

Reporting the MLS on Your Tax Return

You don't manually calculate and pay the MLS separately. It's handled through your annual tax return.

Where the MLS Appears on Your Tax Return

In myTax (or your tax return lodged with an agent), you'll complete the Medicare Levy Surcharge section. You'll need to:

1. Confirm whether you held eligible private hospital cover for the full year
2. If not, indicate the periods when you were covered and when you weren't
3. Enter your insurer's name and policy details if you held cover

The ATO then calculates the MLS based on your income for MLS purposes and the periods without cover. It adds to your tax liability — or reduces your refund.

What You Need From Your Health Fund

Your private health insurer provides an annual Private Health Insurance Statement (formerly called a "rebate statement"). This document shows:

• The dates your cover was active
• The amount of government rebate you received
• Your policy details for ATO reporting purposes

You'll get this statement automatically each year — usually in July for the previous financial year. Keep it handy when lodging your return.

MLS vs. Buying Private Health Insurance: Common Mistakes

People make the same errors year after year. Here are the most common ones.

Mistake 1: Thinking Extras Cover Exempts You

An extras-only policy — covering things like dental, optical, or physio — does not exempt you from the MLS. Full stop. You need hospital cover specifically.

Mistake 2: Forgetting to Check Your Excess

If your hospital policy has a per-stay excess above $750 (or $1,500 for families), it doesn't qualify. Many budget policies use higher excesses to keep premiums low. Run a quick check on your current policy details.

Mistake 3: Assuming You're Under the Threshold Based on Salary Alone

Salary sacrifice, fringe benefits, and investment losses all affect your MLS income. Someone taking home $88,000 after salary sacrificing $8,000 to super has a taxable income of around $96,000 — above the threshold. And the salary-sacrificed amount gets added back on top.

Mistake 4: Letting Cover Lapse Without Realising

Switching funds, changing jobs, or forgetting to pay a premium can create gaps in cover. The ATO applies the MLS for every day you're without eligible hospital cover. Even a 30-day gap costs you something.

Wrapping Up

The Medicare Levy Surcharge is one of those things that sounds simple until you're in it. Earn above $93,000 without private hospital cover, and you're paying between 1.0% and 1.5% extra on your entire income — on top of the standard 2% Medicare Levy. The fix is straightforward: get eligible private hospital cover with a qualifying excess. But make sure what you have actually qualifies, check what your income for MLS purposes really is (not just your salary), and keep an eye on any gaps in your cover throughout the year. A five-minute policy review before 30 June can easily save you over a thousand dollars.