Most Australian taxpayers pay both the Medicare Levy and, if they earn above a certain threshold and don't have appropriate private hospital cover, the Medicare Levy Surcharge. Understanding these charges can save you hundreds or thousands of dollars.
Medicare Levy (Base Rate)
The standard Medicare Levy is 2% of your taxable income. It funds Australia's public healthcare system. Most taxpayers pay this — it's not optional for the vast majority.
Medicare Levy Reductions for Low-Income Earners
If your taxable income is below certain thresholds, the levy is reduced or eliminated:
- Single: No levy if income is below $24,276; phase-in up to $30,345 (2024-25 rates, indexed annually)
- Family: No levy if combined income is below $40,939; phase-in up to $51,173 (plus $3,756 for each dependent child)
- Above the phase-in limits, the full 2% applies
Medicare Levy Exemptions
You may be exempt from the Medicare Levy if:
- You have a valid Medicare Entitlement Statement from Services Australia showing you're not entitled to Medicare benefits (e.g., certain temporary visa holders)
- You're a foreign resident for tax purposes
- You're a resident of Norfolk Island
- You hold an Overseas Student Health Cover (OSHC) policy and are on a qualifying visa
Medicare Levy Surcharge (MLS)
The MLS is an extra tax charged to high-income earners who do not have an appropriate level of private hospital cover. It's designed to encourage people to take out private health insurance, reducing pressure on the public hospital system.
MLS Rates and Thresholds (2025-26)
| Income Tier | Single | Family | MLS Rate |
|---|---|---|---|
| Base tier | $101,000 or less | $202,000 or less | 0% |
| Tier 1 | $101,001–$118,000 | $202,001–$236,000 | 1% |
| Tier 2 | $118,001–$158,000 | $236,001–$316,000 | 1.25% |
| Tier 3 | $158,001+ | $316,001+ | 1.5% |
For families, the thresholds increase by $1,500 for each dependent child after the first.
What Counts as "Appropriate" Private Hospital Cover?
To avoid the MLS, you need a hospital policy that covers:
- Hospital treatment (minimum level of cover varies)
- An excess of $750 or less per person ($1,500 per family)
- You must hold the policy for the entire financial year
Lifetime Health Cover Loading
If you don't take out hospital cover by 1 July after your 31st birthday, a 2% loading applies for every year you delay. This is an additional cost on top of your premiums, not a tax — but it's important to understand when making private health insurance decisions.
Example: MLS Cost vs Private Health Insurance
A single person earning $120,000 without hospital cover pays MLS at 1.5% = $1,800 per year. Basic hospital cover for a 30-year-old costs around $1,200–$1,500 per year. In this case, getting private cover can save money while providing health benefits.
How to Claim the MLS Exemption
When you lodge your tax return, you'll answer questions about your private health insurance status. The ATO cross-references with the Australian Prudential Regulation Authority (APRA) database, so you don't need to provide proof unless asked.
How the Medicare Levy Is Calculated
The Medicare levy is a flat 2% of your taxable income, collected through your tax return. Low-income earners get relief: for 2025-26, singles with taxable income of $28,011 or less pay no levy at all, and between $28,011 and $35,013 the levy is reduced on a sliding scale. For seniors and pensioners entitled to SAPTO, the thresholds are higher — $44,268 and $55,335. Families have their own thresholds (around $47,238 plus $4,338 per dependent child), and people with a Medicare levy exemption (for example, some non-residents or people with a medical certificate for part of the year) pay nothing.
The key distinction: the levy is compulsory for almost everyone, while the Medicare Levy Surcharge (MLS) only applies if you earn above the income thresholds and do not have appropriate private hospital cover. For 2025-26 the MLS starts at $101,000 for singles and $202,000 for families, with rates of 1%, 1.25%, and 1.5% in three tiers as your income rises.
MLS vs Private Health Insurance — What to Do in 2026
If you earn above the MLS threshold, the practical question is whether the cheapest compliant hospital policy costs less than the surcharge. A single person earning $120,000 pays 1.25% — $1,500 a year — without cover. A basic hospital policy might cost roughly the same or less, and it also stops the Lifetime Health Cover loading: if you don't hold hospital cover by 30 June after your 31st birthday, a 2% loading is added for every year you are without it, up to 70%.
- Check your income against the 2025-26 thresholds before 30 June — reportable fringe benefits and some trust distributions count.
- If you're close to the threshold, check whether your cover is "appropriate" — policies with high excesses may not qualify.
- Review your policy annually; the ATO cross-references your private health insurance statement with your return automatically.