The Medicare Levy Surcharge (MLS) is an additional tax that may apply if you earn above a certain income and don’t have private hospital cover.
It’s designed to encourage higher income earners to take out hospital cover and reduce pressure on the public health system.
Key Points
- The Medicare Levy Surcharge is based on your income
- It applies if you earn above a set threshold and don’t have eligible hospital cover
- The surcharge is charged as a percentage of your income
- You can avoid it by taking out an appropriate level of hospital cover
What is the Medicare Levy Surcharge (and why does it exist)?
The Medicare Levy Surcharge (MLS) is a government policy designed to encourage higher income earners to take out private hospital cover.
By doing this, it helps reduce demand on the public health system. People who earn above a certain income and don’t have hospital cover may need to pay the surcharge as part of their income tax.
The Medicare Levy Surcharge is separate from the standard Medicare Levy, which most taxpayers already pay.
When does the Medicare Levy Surcharge apply?
The MLS applies if your income is above a certain threshold and you don’t have an appropriate level of private hospital cover.
Both of these conditions need to be met. If your income is below the threshold, the surcharge won’t apply. If your income is above the threshold but you have eligible hospital cover, you won’t need to pay it.
The surcharge is applied in tiers based on your income, with higher income levels attracting a higher rate.
| Income Tier | Singles Income | Families Income | Surcharge Rate |
|---|---|---|---|
| Base Tier | Up to $101,000 | Up to $202,000 | 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% |
Source: Australian Taxation Office. These thresholds apply for the 2025–26 financial year. For families and single parents, the threshold increases by $1,500 for each dependant child after the first. Specific rules apply when calculating income for Medicare Levy Surcharge purposes.
How is the Medicare Levy Surcharge Calculated?
The MLS is calculated as a percentage of your income. The additional percentage you pay depends on which income tier you fall into.
As shown in the table above, higher incomes attract a higher surcharge rate. For example, if your income puts you in tier 1, the surcharge is 1% of your income for the financial year.
MLS is based on individual circumstances and taxable income, it may be worth speaking to your accountant or tax adviser if you’re unsure whether it applies to you.
How can you avoid paying the Medicare Levy Surcharge?
You can avoid paying the MLS by holding an appropriate level of hospital cover for the full financial year.
If you have a partner or dependant children, they may also need to be covered under your hospital cover (speak with your accountant or tax adviser to confirm).
Extras cover does not exempt you from the surcharge
Is the Medicare Levy Surcharge the same as Lifetime Health Cover loading?
The Medicare Levy Surcharge (MLS) and Lifetime Health Cover loading (LHC) are often confused but they’re different.
The MLS is based on your income and whether you have an appropriate level of hospital cover.
LHC is based on your age when you first take out hospital cover. If you delay taking out hospital cover after turning 31, LHC loading will increase the cost of your premium.
This means you can be affected by one, both or neither, depending on your age, income and whether you have hospital cover.
You can learn more how how these fit together in our guide to government initiatives or read our article on Lifetime Health Cover loading.
Does the Medicare Levy Surcharge apply to extras cover?
No, the Medicare Levy Surcharge only applies to hospital cover.
If you only have extras cover, or are considering extras cover on its own, you may still need to pay the Medicare Levy Surcharge if your income is above the relevant threshold.
Is it worth getting hospital cover to avoid the Medicare Levy Surcharge?
For many people, taking out hospital cover is less about avoiding the Medicare Levy Surcharge itself, and more about weighing up the overall value of having cover.
Depending on your income and circumstances, the cost of the surcharge can sometimes be similar to the cost of an appropriate level of hospital cover.
Whether it’s worth it will depend on your situation, but understanding how the Medicare Levy Surcharge works can help you make a more informed decision.
If you’re considering your options, you can get a quick quote to see what hospital cover might look like for you.
