Most Australians pay the ordinary Medicare levy, yet many are surprised to find an extra Medicare Levy Surcharge on their notice of assessment when they earn over the annual threshold and do not hold the right level of private hospital cover. This guide walks through the 2025–26 income year thresholds for singles and families, shows how the surcharge works, and explains the simplest way to reduce or avoid it by maintaining suitable hospital insurance. Everything here comes from current Australian Taxation Office guidance and is written in plain English so you can calculate your own position with confidence.
Medicare levy versus Medicare Levy Surcharge
The ordinary Medicare levy funds the national public health system and most residents pay it once their taxable income reaches a low-income threshold that sits far below the average wage. The rate is two per cent of taxable income. The surcharge is completely separate. It exists as an extra percentage on top of both taxable income and several other amounts the ATO bundles together for this purpose. The surcharge only kicks in when a taxpayer’s income for MLS purposes moves past the published thresholds and no appropriate private patient hospital cover was in place for every day of the income year. In summary, the levy is almost universal and set at a flat two per cent, while the surcharge is targeted at higher earners and scales up to one point five per cent in addition to the levy.
Current Medicare Levy Surcharge thresholds and rates for 2025–26
The ATO reviews the surcharge tiers each year and presently applies four tiers for the 2025–26 income year. The table below shows the income limits and rates for singles and families.
| MLS tier | Single MLS income | Family MLS income | Surcharge rate |
|---|---|---|---|
| Base tier | 101,000 or less | 202,000 or less | 0 percent |
| Tier 1 | 101,001 to 118,000 | 202,001 to 236,000 | 1 percent |
| Tier 2 | 118,001 to 158,000 | 236,001 to 316,000 | 1.25 percent |
| Tier 3 | 158,001 or more | 316,001 or more | 1.5 percent |
The family threshold rises by 1,500 for every MLS dependant child after the first. If a family has two dependant children the base threshold becomes 203,500, and every tier moves up by the same 1,500.
How the family threshold works
A family is counted when a taxpayer had a spouse at any time during the income year or when a single taxpayer claims dependant children for MLS purposes. The ATO combines each spouse’s MLS income as well as the MLS income of dependants under eighteen. If the combined amount is above the family base tier, the surcharge can apply unless suitable hospital cover covered every relevant person. The dependant child uplift ensures large families are not pushed into the surcharge merely because of the number of children. Remember that the uplift applies after the first child so the second child is the one that starts increasing the threshold. Each additional child raises the cut-off by the same amount.
What counts as income for MLS purposes
Income for MLS purposes is not simply taxable income. The ATO adds back several amounts that can lift taxpayers into a higher tier.
Taxable income remains the starting point. Add reportable fringe benefits shown on the annual payment summary. Add reportable super contributions that an employer or the taxpayer chooses to salary sacrifice or claim as a deduction. Include net investment losses which the ATO adds back because the surcharge is calculated on income before those losses. Also include exempt foreign employment income and any family trust distribution tax assessed amounts. The final figure after adding these components is the MLS income used to test against the thresholds.
The key takeaway is that many employees with salary packaging or investment property losses can tip into the surcharge even if their taxable income appears lower than the threshold printed on the table. Always total the extra components before concluding that the surcharge does not apply.
Private hospital cover and its role in avoiding the surcharge
Holding appropriate private patient hospital cover is the most direct way to avoid the surcharge. Appropriate means the policy must cover hospital treatment, be offered by a registered Australian insurer, and have an excess no higher than 750 for a single policy or 1,500 for a family or couple policy. Extras-only cover, often branded as ancillary or general treatment, does not meet the requirement. A combined policy with both hospital and extras is fine so long as the hospital component exists and the excess stays within the limit.
Every person counted in the MLS income test must be covered for every day of the income year. If a spouse or dependant child is excluded from a family policy, the family can still face a surcharge because cover has not applied to all relevant people. Couples who separate or people who move in with a partner during the year must watch the policy start and end dates and ensure the correct level of cover exists for each part of the year.
Calculating the surcharge
The ATO uses a daily calculation. The full formula is
MLS payable equals MLS income multiplied by the surcharge rate then multiplied by the number of days without appropriate cover divided by the number of days in the income year.
When you hold cover for the entire year the uncovered days count is zero and the result is zero. If cover began, ended or had a gap during the year, the days without cover are counted exactly and the surcharge is charged only on that portion.
Worked examples for the 2025–26 income year
| Scenario | MLS income | Cover status | Tier rate | Uncovered days | MLS payable |
|---|---|---|---|---|---|
| Single taxpayer earning 110,000 | No hospital cover all year | Tier 1 at 1 percent | 366 | 1,100 | |
| Single taxpayer earning 165,000 | No hospital cover all year | Tier 3 at 1.5 percent | 366 | 2,475 | |
| Couple earning combined 225,000 | Family hospital cover full year | Tier 1 but covered | 0 | 0 | |
| Family earning 240,000 with two dependant children | No hospital cover all year | Family Tier 1 with uplift threshold 203,500 | 366 | 2,400 | |
| Single taxpayer earning 130,000 who buys cover after 1 January | Tier 2 at 1.25 percent | 183 uncovered days | 813 | ||
| Employee on taxable income 95,000 with 10,000 reportable fringe benefits and no cover | MLS income 105,000 moves into Tier 1 | 366 days | 1,050 |
The calculation in the first example is 110,000 multiplied by 1 per cent and then multiplied by 366 divided by 366 which equals 1,100. The fifth example shows the common situation where cover is held for part of the year. Divide the uncovered days by 366 to reduce the charge.
Deciding whether to take out hospital cover
The decision often comes down to cost. Compare the annual surcharge with the annual net premium after deducting any private health insurance rebate. A younger single taxpayer in Tier 1 may see a surcharge close to 1,100, which can be lower than the cost of a basic policy. On the other hand, couples and families in the middle and top tiers can pay several thousand in surcharge which often exceeds the premium for a suitable policy. Also consider the clinical benefits of having private patient access and choice of doctor when comparing cost. The key point remains that extras-only policies do not remove the surcharge, while a basic hospital policy with an excess at or below the permitted level does.
Reporting the surcharge on your tax return
Every registered insurer sends an annual private health insurance statement to the ATO and to policy holders. The statement shows the number of days each adult was covered and the rebate percentage claimed. When lodging online through myGov, most fields will prefill from that statement. Check that the days covered match your actual policy dates. If you switched or cancelled policies, the statement should reflect those changes. If you held no hospital cover during the year you will have no statement and the myTax algorithm will calculate any surcharge automatically once you enter your income details. Tax agents follow the same process in their lodgement software. Retain the statement with your tax records for at least five years in case the ATO seeks verification.
Summary checklist to avoid unexpected MLS
First, confirm your MLS income by adding taxable income, reportable fringe benefits, salary sacrifice super and other relevant amounts. Second, check whether you were single or counted as a family at any time during the year and apply the correct threshold along with the child uplift if needed. Third, ensure every relevant person held appropriate private patient hospital cover for every day of the year and that the policy excess stayed within the ATO limits. Fourth, if you experienced gaps, multiply your MLS income by the correct tier percentage and by the proportion of uncovered days to estimate the surcharge. Finally, lodge your return with the correct income and cover details and keep your statement and any insurer correspondence.
Frequently asked questions
What is the Medicare Levy Surcharge
The surcharge is an extra tax that applies when income for MLS purposes is above the published threshold and the taxpayer, spouse or MLS dependants did not have suitable private patient hospital cover for the relevant days of the year. It is charged at one, one point two five or one point five per cent depending on the tier.
Do I pay the surcharge if I already pay the Medicare levy
Yes. The levy and the surcharge are separate. High income earners without appropriate hospital cover pay both.
What is the single threshold for 2025–26
The base tier ends at 101,000 for singles. The surcharge starts at one per cent on the first dollar above that amount if no hospital cover exists.
What is the family threshold for 2025–26
The base family threshold is 202,000. It rises by 1,500 for each MLS dependant child after the first.
Can extras cover remove the surcharge
No. Extras-only or ancillary policies do not meet the ATO definition of appropriate hospital cover.
How does part year cover affect the surcharge
The ATO calculates the charge only for days when no cover existed. If you take out cover mid-year you will still pay a proportionate surcharge for the earlier uncovered days.
Do reportable fringe benefits count toward the threshold
Yes. Add the grossed up taxable value of reportable fringe benefits to taxable income when working out MLS income.
What happens if my spouse and I have separate policies
If both policies are appropriate hospital cover and both adults and all dependants are covered then the family meets the cover requirement. If one spouse lacks cover for even a single day the family can face the surcharge for those days.
Can the surcharge cost more than hospital cover
It can. Singles in Tier 1 sometimes find a basic hospital policy costs more than the surcharge, but families in higher tiers usually face a surcharge bigger than the premium. Premiums vary by age, income rebate and insurer so checking actual quotes is essential.
Where can I confirm the latest thresholds
The most reliable source is the current year Medicare Levy Surcharge page on the ATO website. Always verify figures before lodging because Parliament can change thresholds and rates through the Budget process.
This guide was last reviewed in October 2026 with data current for the 2025–26 income year. Tax law can change so consult the ATO or a registered tax agent for advice tailored to your situation.
