Medicare Levy Surcharge Threshold 2025-26: Income Tiers

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

If your income sits above $101,000 as a single person in 2025-26 — 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.

This is a historical-year guide. The 2025-26 income year ended on 30 June 2026, so every figure below is a 2025-26 figure and none of it describes your current-year position. It stays published for anyone amending or catching up on a 2025-26 return. For 2026-27 the ATO's single tiers are nil at $105,000 or less, Tier 1 (1%) at $105,001–$123,000, Tier 2 (1.25%) at $123,001–$164,000 and Tier 3 (1.5%) above that; the family boundaries are $210,000, $246,000 and $328,000. Run your own numbers on the Medicare Levy Surcharge Calculator, which always uses the current year's figures.

Source for the 2026-27 tiers: ATO — Medicare levy surcharge income thresholds and rates, read 13 August 2026.

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.

A worked example, and the year matters. On $120,000 in 2025-26 with no private cover you sat in Tier 2, so you paid 2% + 1.25% = 3.25% total in Medicare-related levies. The same $120,000 in 2026-27 falls in Tier 1, because the 2026-27 Tier 1 band runs from $105,001 to $123,000 — so the rate is 2% + 1.0% = 3.0%. Indexation moved the tier under this income without the income changing at all, which is exactly why you have to match your figures to your income year.

2025-26 Medicare Levy Surcharge Thresholds and Tiers

The MLS thresholds are indexed to average weekly earnings each year, so they typically rise — 2025-26's are higher than 2024-25's. 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 $202,000 — 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 $101,000.

Put your own figures in. The second field is the one that catches people: salary sacrifice, reportable fringe benefits and rental losses lift the income that sets your tier, and the section below explains why that is not the same as the income you are charged on.

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 $95,000 in salary who also salary-sacrifices $10,000 to super could easily have an MLS income of $105,000 — 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 $118,000 to $118,001 means the full 1.25% applies to all $118,001, 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 — but unlike the MLS thresholds, it resets twice a year, on 1 April, not just at the start of the financial year. So 2025-26 has two separate rates, not one:

These are the Base-tier rates, for singles at or under the MLS Base threshold ($101,000). The rebate steps down at each MLS tier and cuts to 0% once you're in Tier 3 (above $158,000) — check the ATO's rebate rates page or your fund for the exact percentage at your tier and age band, since it changes every 1 April. (For the current period, 1 July 2026 – 31 March 2027, the Base rate is 24.118% / 28.139% / 32.158% for the same three age bands.)

So if your income puts you in Tier 3 — above $158,000 — you get zero rebate and you pay the highest MLS rate.

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. The numbers below are the arithmetic, not a recommendation to buy any particular policy — that call depends on your own health needs and cash flow as well as the tax outcome.

The Break-Even Analysis

At Tier 1 (2025-26: $101,001–$118,000), the MLS costs you 1.0% of your income for MLS purposes. For someone earning $110,000, that's $1,100 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 MLS bill is larger — $2,000–$3,000 a year, for comparison against a mid-tier hospital policy.

The rebate changes the maths too. At the Base tier (income under $101,000), you get the highest rebate — bringing your effective premium cost down. And if you're above $158,000 (Tier 3), you get no rebate, while the MLS hit is also the biggest.

What a Real Comparison Looks Like

For a 35-year-old single on $120,000 in 2025-26, which put them in Tier 2:

• MLS without cover: $120,000 × 1.25% = $1,500 per year
• Basic hospital cover: roughly $1,100–$1,600/year before the Tier 2 rebate
• After rebate on a $1,400 premium: roughly $1,285 net (the exact rebate percentage depends on the period — see the table above)

In this case, the MLS and a basic policy land close to break-even, before counting the hospital cover you'd actually get either way.

The same income in 2026-27 is Tier 1, not Tier 2, so the MLS falls to $120,000 × 1.0% = $1,200 and the comparison tilts further towards buying the policy. Don't carry a break-even calculation across income years without re-checking which tier you land in.

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 $101,000. 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 earning $105,000 who salary-sacrifices $10,000 to super has a taxable income of around $95,000 — seemingly under the 2025-26 threshold. But the sacrificed $10,000 gets added back for MLS purposes, taking their income for MLS purposes back up to $105,000 — into Tier 1.

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 $101,000 in 2025-26 ($105,000 in 2026-27) without private hospital cover, and you're paying between 1.0% and 1.5% extra on your entire income for MLS purposes — on top of the standard 2% Medicare Levy. Checking your position each year is straightforward: work out your income for MLS purposes, compare it to the current thresholds and confirm that any cover you hold actually qualifies (hospital cover, not extras-only, excess $750 or less). A five-minute policy review before 30 June can be the difference between paying the surcharge and not.