This guide is general information only and is not tax, financial or legal advice. Individual circumstances vary. Speak to a registered tax agent before acting.
The Medicare Levy Surcharge is an extra tax that applies to higher income earners who do not hold an appropriate level of private hospital cover. It is separate from, and on top of, the 2 percent Medicare levy that most residents pay. This guide explains who pays the surcharge, the income thresholds and rates, what counts as appropriate cover, and how the two main private health incentives, the rebate and the Lifetime Health Cover loading, fit in. It uses the Australian Taxation Office and privatehealth.gov.au rules. Because two income years matter at the moment, it gives the thresholds for both.
What the surcharge is
The Medicare Levy Surcharge, or MLS, is designed to encourage higher income earners to take out private hospital cover and to ease pressure on the public system. You may have to pay it if your income is above the relevant threshold and you, or any of your dependants, did not have an appropriate level of private patient hospital cover for the full year. The surcharge is charged at 1 percent, 1.25 percent or 1.5 percent depending on your income, and it is in addition to the 2 percent Medicare levy.
The income thresholds and rates
Your rate depends on your income for MLS purposes and whether you are assessed as a single or a family. The table below shows the tiers for the 2026 to 2027 year.
These are the 2026 to 2027 thresholds. For the 2025 to 2026 year, the return most people are lodging now, the single base threshold is 101,000 dollars and the family base threshold is 202,000 dollars, with the same rates. The family threshold rises by 1,500 dollars for each dependent child after the first. If your income is at or below the base threshold, or you held appropriate hospital cover all year, the surcharge does not apply.
| Tier | Single income | Family income | Surcharge rate |
|---|---|---|---|
| Base tier | $105,000 or less | $210,000 or less | 0% |
| Tier 1 | $105,001 to $123,000 | $210,001 to $246,000 | 1% |
| Tier 2 | $123,001 to $164,000 | $246,001 to $328,000 | 1.25% |
| Tier 3 | $164,001 or more | $328,001 or more | 1.5% |
What counts as income for the surcharge
Income for MLS purposes is broader than your taxable income. It is the sum of your taxable income, reportable fringe benefits, total net investment losses from financial investments and rental property, and reportable super contributions, including salary sacrificed and deductible personal contributions. If you have a spouse, your combined income is used. The rate is set from this figure, and the surcharge is then charged on your taxable income plus any reportable fringe benefits.
What counts as appropriate hospital cover
To avoid the surcharge, you need private patient hospital cover with a registered health insurer, held for the full year. The policy must have an excess of 750 dollars or less for a single, or 1,500 dollars or less for a couple, family or single parent family. Extras cover on its own, sometimes called ancillary or general treatment cover, does not count. If you held appropriate cover for only part of the year, the surcharge can apply for the days you were not covered.
Worked example
Example only. In the 2026 to 2027 year a single person aged 35 with no dependants does not hold appropriate hospital cover. Their taxable income is 90,000 dollars, and they also have reportable fringe benefits of 27,000 dollars. Their income for MLS purposes is 117,000 dollars, which places them in Tier 1, so the rate is 1 percent. The surcharge is charged on their taxable income plus reportable fringe benefits, 117,000 dollars, giving a surcharge of 1,170 dollars for the year. This is an example only, based on an ATO example.
The private health insurance rebate
The private health insurance rebate is a government contribution towards the cost of your premium. It is income tested against the same tiers as the surcharge, and it is also based on the age of the oldest person on the policy. For people under 65 in the base income tier, the rebate is around 16 percent of the premium, and it is higher for those aged 65 and over. The rebate reduces as income rises across the tiers and is nil in the top tier. You can take the rebate as a reduced premium paid to your insurer during the year, or claim it as an offset when you lodge. The exact percentages are adjusted by the government each year on 1 April.
Lifetime Health Cover loading
Lifetime Health Cover, or LHC, is a loading that encourages people to take out hospital cover earlier in life. If you do not hold hospital cover by the 1 July following your 31st birthday and take it out later, you pay a loading of 2 percent on top of your hospital premium for each year you are aged over 30, up to a maximum of 70 percent. For example, someone who first takes out cover at 40 pays a 20 percent loading. The loading is removed once you have held hospital cover continuously for 10 years. It applies only to hospital cover, not extras, and the rebate does not apply to the loading part of a premium.
Is cover worth taking to avoid the surcharge
Whether hospital cover costs less than the surcharge depends on your income and the premium. For people above the threshold, a basic hospital policy can cost about the same as the surcharge, so the comparison is between the surcharge and the premium after the rebate. Below the threshold the surcharge does not apply, so cover is a personal choice rather than a tax question. Working out both figures for your own situation is the way to compare them.
Common questions
- What is the Medicare Levy Surcharge rate?
- Between 1 percent and 1.5 percent of your income, depending on your income tier, on top of the 2 percent Medicare levy.
- What income triggers the surcharge?
- For 2026 to 2027, a single income above 105,000 dollars or a family income above 210,000 dollars, if you do not hold appropriate hospital cover. For 2025 to 2026 the thresholds are 101,000 dollars and 202,000 dollars.
- Does extras cover let me avoid the surcharge?
- No. Only private patient hospital cover with an excess within the limits avoids the surcharge. Extras only cover does not count.
- How do I avoid the surcharge if I am over the threshold?
- Hold an appropriate level of private hospital cover for the full year.
- What is the difference between the Medicare levy and the surcharge?
- The 2 percent Medicare levy is paid by most residents. The surcharge is an extra amount that only applies to higher income earners without hospital cover.
- What is the Lifetime Health Cover loading?
- A 2 percent loading per year for taking out hospital cover after the 1 July following your 31st birthday, up to 70 percent, removed after 10 years of continuous cover.
Sources and references
Reviewed and checked against ATO and privatehealth.gov.au primary sources on 15 August 2026.
This article is general information only and does not constitute financial or tax advice. Individual circumstances vary. Please consult a registered tax agent or financial adviser before making any decisions based on this information.