The Medicare Levy Surcharge (MLS) is an additional tax imposed on high-income earners who don't have private hospital cover. It's designed to encourage people who can afford private health insurance to take it up, reducing pressure on the public Medicare system.
The critical question this guide answers: do you legally need private health insurance in Australia?
The answer: no — private health insurance is never legally mandatory. But if you earn above certain thresholds and don't have hospital cover, you'll pay an extra 1–1.5% tax on top of the standard 2% Medicare Levy — and for many people, buying basic hospital cover is cheaper than paying that surcharge.
What the Medicare Levy Surcharge is.
The basics
MLS is an additional tax on top of the standard Medicare Levy.
Standard Medicare Levy: 2% of taxable income — everyone pays this, whether you have private insurance or not.
Medicare Levy SURCHARGE: an extra 1–1.5% if you both:
- Earn above the income thresholds, and
- Don't have private hospital cover (or adequate hospital cover)
Important: the surcharge is in addition to the standard 2% levy, not instead of it.
WORKED EXAMPLE
$120,000 income, no hospital cover
- Standard Medicare Levy: 2% = $2,400 (you pay this regardless)
- MLS, with no hospital cover: 1.25% = $1,500 extra
Total Medicare payments without cover: $3,900/year.
Why MLS exists
The Australian government introduced MLS to:
- Encourage private health insurance uptake among higher earners
- Reduce pressure on public hospitals by incentivising use of private hospitals
- Make it financially logical to get basic hospital cover instead of paying extra tax
The government's calculation: if you can afford to pay 1–1.5% extra tax, you can afford basic hospital cover. And if you're going to spend the money anyway, you might as well get some coverage out of it.
MLS vs the standard Medicare Levy
| Feature | Standard Medicare Levy | Medicare Levy Surcharge |
|---|---|---|
| Who pays | Everyone with income above ~$27k | High earners without hospital cover |
| Rate | 2% of taxable income | 1–1.5%, depending on income tier |
| Can you avoid it? | No — unless you qualify for a low-income exemption | Yes — get hospital cover |
| What it funds | The Medicare system | An incentive mechanism — it goes to general revenue |
Income thresholds and surcharge rates.
These thresholds are for the 2025-26 financial year (July 1, 2025 – June 30, 2026). They are indexed annually and typically increase slightly each year.
Updated every July 1. Thresholds and rates change with the financial year — always verify the current figures at ato.gov.au before making a decision.
| Tier | Income (single) | Income (family*) | MLS rate |
|---|---|---|---|
| Base | Less than $97,000 | Less than $194,000 | 0% — no MLS |
| Tier 1 | $97,000 – $113,000 | $194,000 – $226,000 | 1.0% |
| Tier 2 | $113,000 – $151,000 | $226,000 – $302,000 | 1.25% |
| Tier 3 | $151,000 and above | $302,000 and above | 1.5% |
*Family threshold = 2 × the single threshold, plus $1,500 for each dependent child after the first. Source: Australian Taxation Office, 2025-26 financial year.
How family thresholds work
The base family threshold is $194,000 (2 × $97,000). For each dependent child after the first, add $1,500.
| Family composition | Threshold |
|---|---|
| Couple, no kids | $194,000 |
| Couple, 1 child | $194,000 |
| Couple, 2 children | $195,500 ($194k + $1,500) |
| Couple, 3 children | $197,000 ($194k + $3,000) |
| Couple, 4 children | $198,500 ($194k + $4,500) |
"Dependent child" means:
- Under 21 years old, or
- Under 25 and a full-time student
What income counts?
MLS is based on "income for MLS purposes", which includes:
- Taxable income
- Reportable fringe benefits
- Total net investment losses
- Reportable superannuation contributions
- Any other assessable income
This is often higher than just your salary. Check your tax return or consult a tax professional for your exact MLS income.
Work out your own.
Both of the article's calculators in one: what the surcharge would cost you, and whether basic hospital cover would cost less than paying it.
Your surcharge, and whether cover beats it. In 10 seconds.
Your Medicare Levy Surcharge
$1,500/yr
Tier 2 · 1.25%
Option 1 — no hospital cover
Option 2 — basic hospital cover
Cover costs you more
$23 a year
— and you get basic hospital coverage for it.
2025-26 thresholds. Indicative only — get a real quote.
Thresholds, surcharge rates and the 2% levy are the 2025-26 figures published in the table above. The Basic hospital premium is modelled on this article's own worked examples, which run from about $1,350 a year at age 29 to about $2,200 at age 40 — roughly $77 for each year of age — and a couple or family policy is twice the single premium, which is where the article's ~$3,200 family figure lands. Dependent children are covered on a family policy at no extra premium; they only move the threshold. The rebate follows the same income tier as the surcharge (Base 24.608% · Tier 1 16.405% · Tier 2 8.202% · Tier 3 0%). Verify against ato.gov.au before acting on any of it.
How to avoid MLS.
The simple answer
Get private hospital cover — or combined cover that includes hospital.
That's it. If you have hospital cover that meets the government's requirements, you don't pay MLS, regardless of how high your income is.
Avoids MLS
- Hospital cover — any tier: Basic, Bronze, Silver or Gold
- Combined cover (hospital + extras)
MINIMUM REQUIREMENT
- Basic hospital tier is enough. You don't need Gold — Basic is fine.
Does NOT avoid MLS
- Extras-only cover
- Having no cover at all
- Overseas visitors cover (OVHC) or overseas student cover (OSHC)
When cover must be in place
Hospital cover must be held for the full financial year (July 1 – June 30) to avoid MLS for that year. If you get cover partway through, MLS is calculated proportionally.
WORKED EXAMPLE
Cover taken out halfway through the year
- Income: $120,000 — Tier 2, 1.25% rate
- Got hospital cover on January 1, halfway through the financial year
- MLS applies for July 1 – December 31 (6 months)
MLS charged: ($120,000 × 1.25%) × (6/12) = $750.
At tax time: your insurer provides a statement showing which days you were covered. You enter this when filing your tax return.
Is avoiding MLS worth it?
The question isn't "should I avoid MLS?" — it's "is basic hospital cover cheaper than paying the surcharge?" For most people over the threshold, yes.
When basic hospital cover is cheaper
| Income | MLS tier | MLS cost | Basic premium* | Net difference |
|---|---|---|---|---|
| $100k | Tier 1 | $1,000 | ~$1,200 | Cover costs $200 more |
| $110k | Tier 1 | $1,100 | ~$1,250 | Cover costs $150 more |
| $120k | Tier 2 | $1,500 | ~$1,400 | Save $100 with cover |
| $140k | Tier 2 | $1,750 | ~$1,500 | Save $250 |
| $160k | Tier 3 | $2,400 | ~$1,600 | Save $800 |
*Premiums: February 2026 market averages for Basic hospital, single, age 30–35, after the government rebate. Being checked: these net premiums assume the rebate percentages used in this article's worked examples. The calculator above applies the rebate on the same income tiers as the surcharge (Base 24.608% · Tier 1 16.405% · Tier 2 8.202% · Tier 3 0%), which is what the Government Rebate guide publishes — so around $120,000 the two land either side of break-even. The rebate line is with the author for confirmation.
Key insight: the higher your income, the more you save by getting cover instead of paying MLS.
When paying MLS might be smarter
There are a few genuine cases:
- You're just barely over the threshold ($97k–100k) and Basic hospital cover costs more than the surcharge
- You're leaving Australia soon and it isn't worth taking on a policy
- You have a strong philosophical objection to private health insurance and are willing to pay extra
WORKED EXAMPLE
Just over the threshold
- Income: $98,000
- MLS: 1.0% = $980/year
- Basic hospital: $1,400/year (age 35, after rebate)
Paying MLS saves $420/year. So the question becomes: is $420 a year worth having no hospital coverage at all? Most people's answer is no — they'd rather spend the extra and have basic emergency cover.
Common scenarios and calculations.
Four situations worked through end to end — including the one where cover costs more and is still the better call.
Being checked: Michael's and David's examples apply a government rebate of 16.405% and 8.202% respectively. On the 2025-26 rebate tiers — which use the same income bands as the surcharge — a $135,000 income sits in Tier 2 (8.202%) and $165,000 in Tier 3 (0%). The figures below are reproduced as supplied; the rebate line is with the author for confirmation.
SCENARIO 1
Sarah — $105k, single, age 32
Situation: income for MLS $105,000, Tier 1 (1.0%), currently no hospital cover.
Without cover: Medicare levy $2,100 + MLS $1,050 = $3,150/year.
With Basic hospital: levy $2,100, MLS $0, premium ~$1,500 less rebate (16.405%) −$246 = net $1,254 — $3,354/year.
Cover costs $204/year more. Sarah gets it anyway: only $17 a month, she's 32 so she needs cover to avoid Lifetime Health Cover loading regardless, and she has basic emergency coverage instead of nothing.
SCENARIO 2
Michael — $135k, single, age 29
Situation: income for MLS $135,000, Tier 2 (1.25%), no hospital cover.
Without cover: Medicare levy $2,700 + MLS $1,688 = $4,388/year.
With Basic hospital: levy $2,700, MLS $0, premium ~$1,350 less rebate (16.405%) −$221 = net $1,129 — $3,829/year.
Cover saves $559/year. Michael takes Bronze ($1,800/year) rather than Basic: still saves about $300 against the surcharge, gets real accident and basic-procedure cover, and he's approaching 31 anyway.
SCENARIO 3
James & Lisa — $220k combined, 2 kids
Situation: combined income $220,000 against a family threshold of $197,000 ($194k + $3k for the second child) — Tier 1 (1.0%). Children aged 5 and 7.
Without cover: Medicare levy $4,400 + MLS $2,200 = $6,600/year.
With family Basic hospital: levy $4,400, MLS $0, premium ~$3,200 less rebate (16.405%) −$525 = net $2,675 — $7,075/year.
Cover costs $475/year more — about $40 a month for the whole family. They take Bronze family cover ($4,000/year) for better coverage of two active kids and peace of mind.
SCENARIO 4
David — $165k, single, age 40
Situation: income $165,000, Tier 3 (1.5%), single.
Without cover: Medicare levy $3,300 + MLS $2,475 = $5,775/year.
With Basic hospital: levy $3,300, MLS $0, premium ~$2,200 (age 40 means higher premiums) less rebate (8.202%) −$180 = net $2,020 — $5,320/year.
Cover saves $455/year. David takes Silver ($3,500/year): still competitive against the surcharge, and at 40 he wants faster access if he needs surgery.
Exemptions and special cases.
Who is exempt from MLS?
You don't pay MLS — even if you're over the threshold without cover — if you are:
- Certain benefit recipients: some government benefit recipients, and members of the defence forces meeting specific criteria
- A foreign resident: not an Australian resident for tax purposes. Note that if you ARE an Australian tax resident but temporarily overseas, MLS may still apply
- In specific circumstances: certain disability support pension recipients, and certain Commonwealth seniors health card holders (income dependent)
Check with the ATO. Exemptions are complex and specific. If you think you might qualify, check the ATO's MLS exemptions page or consult a tax professional.
Covered for only part of the year
MLS is calculated proportionally: MLS = (income × MLS rate) × (days without cover ÷ 365).
WORKED EXAMPLE
Cover for part of the year
- Income: $120,000 — Tier 2, 1.25%
- Had cover July 1 – October 31 (123 days)
- No cover November 1 – June 30 (242 days)
MLS = ($120,000 × 1.25%) × (242/365) = $995.
A couple where only one person has cover
If you're in a couple and only one of you has hospital cover:
- You both need cover to avoid MLS
- One covered and one not means you still pay MLS on the full family income
The fix: two separate singles policies, or one family/couples policy covering both.
Dependent children
Children are automatically covered under a family hospital policy.
- Under 21: always covered as dependants
- 21–24: covered if full-time students
- 25+: need their own policy
If your kids are covered but you — the parent — are not, MLS still applies to your income.
Frequently asked questions.
Singles: $97,000. Families: $194,000 (base) plus $1,500 per dependent child after the first.
If your income is below these thresholds, you don't pay MLS regardless of whether you have hospital cover. If your income is above them and you don't have hospital cover, you pay:
- Tier 1 ($97k–113k single / $194k–226k family): 1.0%
- Tier 2 ($113k–151k single / $226k–302k family): 1.25%
- Tier 3 ($151k+ single / $302k+ family): 1.5%
Source: Australian Taxation Office, 2025-26 FY. These thresholds are indexed annually — always verify the current year's rates.
You don't legally need it, but financially it usually makes sense. You have two options over $97k single / $194k family:
Option 1 — don't get hospital cover: pay the surcharge (an extra 1–1.5% tax). At $120k income that's $1,500/year. Result: no coverage, and the money goes to tax.
Option 2 — get basic hospital cover: avoid MLS entirely and pay a hospital premium instead (~$1,200–1,800/year after rebate). Result: usually similar or less cost, but you get coverage.
For most people Option 2 is better — the same or less money, but you get emergency hospital coverage out of it.
Hospital cover — any tier: Basic, Bronze, Silver or Gold.
Avoids MLS: hospital-only cover; combined cover (hospital + extras).
Does not avoid MLS: extras-only cover; no cover.
Basic tier hospital is sufficient. You don't need Gold cover to avoid MLS — Basic works fine.
No — they're different.
Medicare Levy (2%): everyone with income above ~$27k pays it, it funds the Medicare system, and you can't avoid it except through low-income exemptions.
Medicare Levy Surcharge (1–1.5%): only high earners without hospital cover pay it, it's an incentive to take up private insurance, and you can avoid it by getting hospital cover.
At $120k income: Medicare Levy $2,400 (can't avoid) + Medicare Levy Surcharge $1,500 (can avoid with hospital cover) = $3,900 if you have no cover.
If you have hospital cover, your health insurer provides a statement showing the days you were covered.
- Get the statement from your insurer — usually available online, and sent before tax time
- When filing, answer "Do you have hospital cover?" — Yes
- Enter the number of days covered in the financial year
- The ATO calculates MLS, if any, proportionally
Covered the full year means MLS is $0. Covered part of the year means MLS is calculated for the uncovered days only. You don't need to "claim" anything — just report your coverage days accurately.
Yes, and many people do. The strategy is to get "Basic" tier hospital cover — the minimum required to avoid MLS.
A typical Basic tier covers very little (often just emergency basics), is the cheapest hospital premium (~$80–140/month single, February 2026), and is sufficient to avoid MLS.
The downside: you probably won't use this cover — the exclusions are extensive. It's essentially "MLS avoidance insurance".
Alternative: consider Bronze tier (~$30/month more) for accident and injury coverage you might actually use.
MLS is based on your annual income, calculated at tax time.
Example: promoted in January, income jumps from $85k to $125k. Total for the financial year: $105,000 — Tier 1 (1.0%). With no hospital cover you'll pay 1.0% MLS on the full $105k when you file.
What to do: get hospital cover as soon as you know your income will exceed the threshold. MLS is calculated proportionally for the days without cover, so it's better to have cover for the whole year if you're close to the threshold.
Tip: if you expect income to rise, get cover earlier in the financial year.
Yes, if your combined income exceeds the family threshold. For MLS purposes couples are assessed on their combined income, and both of you must have hospital cover to avoid it.
Your options: get a couples/family policy covering both; get two separate singles policies; or one person pays MLS — which isn't ideal, since you're paying tax for no benefit.
Example: Partner A on $110k has cover, Partner B on $50k doesn't. Combined $160k puts them in Tier 2 (1.25%), so they still pay about $2,000 in MLS unless Partner B also gets cover. If Partner B takes Basic hospital at ~$1,200/year, they avoid the $2,000 surcharge.
It depends on the type of coverage.
Employer-provided hospital cover typically avoids MLS, as long as it meets Australian government requirements — i.e. it's a proper hospital insurance policy.
"Corporate health plans" or "health benefits" don't count if they're just discounted GP visits, dental and similar (that's extras), or overseas travel insurance.
Ask your employer specifically whether the cover is "complying hospital cover for MLS purposes". If you're uncertain, get your own Basic hospital policy to be safe (~$100–120/month).
For most people over the threshold, Basic hospital costs less than or similar to MLS. A quick comparison (single, 2025-26 rates, February 2026 premiums after rebate, age 30–35):
- $100k — MLS $1,000 vs Basic ~$1,200: cover costs $200 more
- $110k — MLS $1,100 vs Basic ~$1,250: cover costs $150 more
- $120k — MLS $1,500 vs Basic ~$1,400: save $100 with cover
- $140k — MLS $1,750 vs Basic ~$1,500: save $250
- $160k — MLS $2,400 vs Basic ~$1,600: save $800
The higher your income, the more you save with cover. And even when cover costs slightly more ($100–200/year), you get coverage instead of paying tax for nothing.
Next steps.
What to do with all this, depending on which side of the threshold you're on:
If you're over the threshold
- Work out your exact surcharge with the calculator above, then:Back to the MLS calculator
- See the cheapest policies that avoid it:View Basic hospital policies
- Get pricing for your own situation:Get personalised hospital quotes
If you're under the threshold
MLS doesn't apply to you — you don't need to worry about it. But you might still consider health insurance for:
- Avoiding Lifetime Health Cover loading, if you're approaching age 31:Lifetime Health Cover explained
- Faster access to surgery, or extras cover for dental and optical:Hospital vs extras vs combined
Learn more
External resources
- Official MLS thresholds, rates and exemptionsAustralian Taxation Office — MLS
- Government health insurance comparisonPrivateHealth.gov.au
- Health insurance policy informationDepartment of Health
Not tax advice: this guide provides general information about the Medicare Levy Surcharge. It does not constitute tax advice. For advice specific to your circumstances, consult a registered tax agent or financial adviser.
Data currency: MLS thresholds, rates and rebate percentages are for the 2025-26 financial year (July 1, 2025 – June 30, 2026). These are indexed annually. Premium estimates are February 2026 market averages. Always verify current rates with the Australian Taxation Office before making decisions.
General information: this content does not consider your individual tax situation, income composition, or financial circumstances. MLS liability depends on your specific "income for MLS purposes", which may differ from your salary.
Sources: information sourced from Australian Taxation Office official publications and February 2026 health insurance market data.
Last updated: February 26, 2026 · Next review: July 2026, after the 2026-27 financial year thresholds are announced · Found something incorrect or outdated?Contact us
