Medicare Levy Surcharge

The Medicare Levy Surcharge (MLS) is an Australian tax surcharge imposed on higher-income taxpayers who do not hold eligible private hospital insurance. It is separate from the ordinary Medicare levy and is intended to encourage private hospital cover, reducing pressure on the public Medicare system by encouraging use of private hospitals where possible.^[1]

Overview

The MLS sits at the intersection of Australian tax policy and private health insurance policy. It is collected through the income tax system, generally when an individual lodges an annual tax return. Although it is commonly discussed with private health insurance, the surcharge itself is a tax liability rather than an insurance premium. A taxpayer may avoid the surcharge by being below the relevant income threshold, by holding the required type of hospital cover for themselves and relevant family members, or by falling within specific exemption rules.^[1]

The surcharge applies only where a taxpayer’s income for MLS purposes is above the relevant threshold and the taxpayer, spouse or dependants do not have an approved level of private patient hospital cover. For the 2026–27 financial year, the surcharge threshold begins above A$105,000 for singles and above A$210,000 for families or couples, with the family threshold increasing by A$1,500 for each dependent child after the first.^[1]

The MLS is distinct from the Medicare levy. The ordinary Medicare levy is generally 2% and is paid by most Australian taxpayers. The MLS is additional to that levy and is levied at 1.0%, 1.25% or 1.5%, depending on the taxpayer’s income tier.^[1]

Legislative and administrative basis

The MLS is imposed under provisions of the Medicare Levy Act 1986. The legislation provides separate rules for individuals without dependants, individuals with dependants, married persons, and certain trustee situations. For a single person without dependants, the law applies where the person is not married, has no dependants, is not covered by a policy that provides private patient hospital cover, and is not a prescribed person.^[3]

The Act also provides for pro-rating where the relevant circumstances apply for only part of an income year. For example, if a person has no eligible cover for part of the year and otherwise meets the income and family-status tests, the surcharge is calculated by reference to the number of days in that year during which the person was subject to the MLS rules.^[3]

For married taxpayers, the law tests combined income for surcharge purposes against the family threshold. The Act also includes a condition that, for the married-person rules, the individual’s own income for surcharge purposes must exceed A$26,000 in relevant cases.^[3] The public guidance on privatehealth.gov.au summarises the practical position: a family with income above the family threshold must generally hold hospital cover for the taxpayer, partner and dependants to avoid the surcharge.^[1]

Rates and thresholds

The MLS is income tested. For 2026–27, the base tier has a 0.0% surcharge rate up to A$105,000 for singles and up to A$210,000 for families. Tier 1 applies at 1.0% for singles with income from A$105,001 to A$123,000 and families with income from A$210,001 to A$246,000. Tier 2 applies at 1.25% for singles from A$123,001 to A$164,000 and families from A$246,001 to A$328,000. Tier 3 applies at 1.5% for singles at A$164,001 or more and families at A$328,001 or more.^[1]

For 2025–26, the single thresholds were A$101,000, A$118,000 and A$158,000 across the tier boundaries, while the family thresholds were A$202,000, A$236,000 and A$316,000. The same rate structure of 0.0%, 1.0%, 1.25% and 1.5% applied.^[1]

Single parents and couples, including de facto couples, are treated under the family tiers. The threshold uplift of A$1,500 for each child after the first applies to families with children.^[1] This means the surcharge is not assessed solely by reference to an individual’s taxable income in all cases; family composition and spouse income can change the relevant threshold and tier.

Income for MLS purposes

Income for MLS purposes is broader than taxable income alone. ATO material states that income for Medicare levy surcharge purposes includes taxable income, reportable fringe benefits, total net investment losses, reportable superannuation contributions and, where a taxpayer has a spouse, certain spouse trust income not already included in taxable income.^[5]

This broader income measure is significant because some amounts that reduce taxable income or are reported separately for tax purposes can still be relevant to surcharge testing. For example, net rental property losses and reportable superannuation contributions may affect the income figure used to determine whether the taxpayer is in a surcharge tier.^[5]

The income measure is used to determine whether a taxpayer is liable for the MLS and what tier applies. The Medicare Levy Act provisions then refer to the surcharge being calculated as a percentage of taxable income, or equivalent trust income in certain trustee cases, subject to the statutory formulas and partial-year rules.^[3]

Eligible private hospital cover

To avoid the MLS, a taxpayer above the relevant income threshold generally needs approved hospital insurance with a registered health insurer. Public guidance states that the hospital cover must cover some or all fees and charges for a stay in hospital.^[1]

Not all health-related insurance products are sufficient. General treatment, also known as extras or ancillary cover, does not by itself provide an MLS exemption. Privatehealth.gov.au also states that overseas visitors health cover and overseas students health cover do not exempt a taxpayer from the surcharge.^[4]

The required cover is subject to excess limits. From 1 April 2019, the maximum permitted yearly front-end deductible or excess for MLS exemption purposes is A$750 for singles and A$1,500 for couples or families. A policy with a higher excess will generally not be sufficient to avoid the surcharge unless a grandfathering rule applies to certain older continuously held policies.^[1]

Dependants and family coverage

The MLS is assessed with reference to the taxpayer and their dependants. Privatehealth.gov.au describes dependants for MLS purposes as including a spouse, children under 21 years of age, and full-time student children under 25 years of age.^[1]

For a family whose combined income exceeds the applicable family threshold, cover generally needs to extend to the taxpayer, partner and dependants. If a partner or dependant is not covered, the family may still be liable for the surcharge even where the taxpayer has hospital cover personally.^[1]

Adult dependants can create practical complications. A person covered as a dependant on a family hospital policy is not liable to pay the MLS so long as that person does not have a spouse or dependants of their own.^[1] Once the person has their own spouse or dependants, their position may need to be assessed separately under the tax rules.

Partial-year cover and suspension

The MLS can apply on a partial-year basis. If a taxpayer has eligible hospital cover for only part of an income year, the taxpayer may receive a partial exemption and be liable only for the days without eligible cover, assuming the income and family-status tests are otherwise met.^[1]

Policy suspension can also affect liability. If hospital cover is suspended, for example during overseas travel, privatehealth.gov.au states that the taxpayer is not exempt during the suspension period and will have to pay the surcharge for the suspended days if the other conditions are met.^[1]

The legislation supports this day-count approach. The Medicare Levy Act formulas for relevant categories refer to the number of days in the income year during which the surcharge provisions apply, divided by the number of days in the year of income.^[3]

Relationship with the private health insurance rebate

The MLS is part of a broader policy framework that includes the Australian Government Private Health Insurance Rebate and Lifetime Health Cover. The rebate helps reduce the cost of private health insurance premiums for eligible people and is income tested. It applies to hospital, general treatment and ambulance policies provided by Australian registered health insurers, but not to overseas visitors health cover or other types of insurance.^[2]

The rebate and MLS use related income tiers, but they operate differently. The rebate reduces eligible insurance costs, while the MLS is a tax surcharge on taxpayers who exceed the relevant threshold and do not hold the required hospital cover. The rebate percentage also varies by age and income tier, whereas the MLS surcharge rate varies by income tier only.^[2]

Because the MLS exemption requires hospital cover rather than extras-only cover, a taxpayer may receive a rebate on a private health insurance product but still need to verify whether the product is sufficient for MLS purposes. The government’s private health insurance guidance notes that most hospital policies are sufficient, but people seeking exemption should check that their insurer confirms the policy meets the surcharge requirements.^[4]

Economic and policy role

The MLS is designed to influence behaviour rather than merely raise revenue. Its stated policy aim is to encourage people to take out private hospital cover and, where possible, use the private hospital system, thereby reducing demand on the public Medicare system.^[1]

This makes the MLS a fiscal incentive as well as a tax rule. Higher-income taxpayers compare the cost and value of private hospital cover with potential surcharge liability. The policy does not require taxpayers to buy private insurance, but it changes the after-tax cost of remaining uninsured for private hospital purposes once income exceeds the relevant threshold.

The MLS also interacts with financial planning because the income test includes items beyond salary and wages. Investment income, reportable fringe benefits, net investment losses and reportable superannuation contributions can affect the applicable tier.^[5] For this reason, the surcharge is often relevant to households with employment income, investment portfolios, rental property losses, salary-packaging arrangements or deductible personal superannuation contributions.

Distinction from related concepts

The MLS should not be confused with the Medicare levy, the private health insurance rebate or Lifetime Health Cover. The Medicare levy is a general levy paid by most taxpayers to help fund Australia’s public health system. The MLS is an additional surcharge for higher-income taxpayers without eligible hospital cover.^[1]

The private health insurance rebate is a government contribution toward eligible private health insurance premiums, subject to income and age settings.^[2] Lifetime Health Cover is a separate loading on private hospital premiums for people who take out hospital cover later in life; it is not the same as the MLS and is not calculated through the same annual income-tier mechanism.

Nor is the MLS equivalent to a general requirement to hold private insurance. Private health insurance remains optional in Australia. The MLS instead creates an income-tested tax consequence where taxpayers above the threshold do not hold qualifying private hospital cover.