The names are nearly identical, and even health-fund advertising mixes them up. Side by side:
| Medicare levy | Medicare levy surcharge (MLS) | |
|---|---|---|
| Rate | 2% of taxable income | 1%, 1.25% or 1.5% depending on income tier |
| Who pays | Most taxpayers (reduced or nil at low incomes) | Only those over the income threshold without appropriate hospital cover |
| Avoidable with insurance? | No, payable regardless of insurance | Yes, appropriate private patient hospital cover removes it |
| Withheld from your pay? | Yes, included in normal PAYG withholding | No, assessed at tax time, so it can arrive as a surprise bill |
The Medicare levy: 2%, nearly universal
The levy is 2% of your taxable income, on top of income tax. Low-income earners pay a reduced levy or none: for singles the levy phases in between $28,011 and $35,013 (the latest published thresholds, they're set retrospectively each Budget). There are also exemption categories (some foreign residents, Defence and some veterans' card holders). For most employees it's simply built into withholding and invisible until you look at a payslip breakdown. Our calculators include it in every take-home figure: the tax brackets guide shows how it stacks on the bracket rates.
The surcharge: a no-hospital-cover tax on higher incomes
The MLS is an additional amount, on top of the levy, if both of these are true for you:
- your income for MLS purposes is over the threshold, and
- you, your spouse and your dependent children don't all hold an appropriate level of private patient hospital cover.
2026-27 income tiers
| Tier | Single | Family | MLS rate |
|---|---|---|---|
| Base tier | $105,000 or less | $210,000 or less | 0% |
| Tier 1 | $105,001 – $123,000 | $210,001 – $246,000 | 1% |
| Tier 2 | $123,001 – $164,000 | $246,001 – $328,000 | 1.25% |
| Tier 3 | $164,001 or more | $328,001 or more | 1.50% |
The family threshold rises by $1,500 for each dependent child after the first. Couples are assessed on combined income against the family threshold, but a spouse whose own MLS income is very low doesn't personally pay even if the family is over.
"Income for MLS purposes" is bigger than your salary
The threshold test doesn't use taxable income alone. It adds together, for you and your spouse:
- taxable income (including any net amount subject to family trust distribution tax)
- reportable fringe benefits
- net investment losses, financial and rental property losses are added back
- reportable super contributions, salary sacrifice to super and deductible personal contributions
The add-backs catch people out. Negative gearing and super salary sacrifice both reduce your taxable income but don't reduce your MLS income, so strategies that cut your income tax can leave you over an MLS threshold you thought you were under. (The same broadened income test drives HECS repayments and Division 293 tax, the ATO reuses it across income tests.)
How the bill is calculated: ATO worked example
Tom is single with no hospital cover, taxable income of $90,000 and $27,000 of reportable fringe benefits. His MLS income is $117,000, which lands in Tier 1 (1%). The surcharge is levied on his taxable income plus reportable fringe benefits: 1% × $117,000 = $1,170 for the year, on top of his 2% Medicare levy. Nothing was withheld for it during the year, so it lands in his tax assessment.
What counts as "appropriate hospital cover"
- Private patient hospital cover from a registered Australian health insurer.
- Policy excess of $750 or less (singles) or $1,500 or less (couples/families).
- Extras-only cover, travel insurance and overseas policies don't count.
- Coverage is counted by the day, cancel mid-year (including while travelling overseas) and the surcharge applies to the uncovered days.
Whether hospital cover is worth buying purely to dodge the surcharge depends on the premium versus your MLS bill, plus non-tax factors like lifetime health cover loading. That's a personal-circumstances decision this page doesn't make for you.
Sources
Figures on this page come from the following primary sources. The date is when we last checked the page against the source.
- Medicare levy surcharge income thresholds and rates (ATO), checked 25 August 2026.
- Paying the Medicare levy surcharge (ATO), checked 25 August 2026.
- Medicare levy reduction for low-income earners (ATO), checked 27 July 2026.
Related
Medicare levy surcharge calculator: compare the surcharge with a hospital cover quote at your income. Salary sacrifice calculator: sacrifice reduces taxable income but not MLS income, see both effects. Tax brackets 2026-27: how the levy sits on top of the bracket rates. Division 293 tax: the same income test applied to super contributions above $250,000.
Figures current as at 14 September 2026. Tiers and definitions verified against the ATO's MLS threshold and hospital-cover pages (dated 22 June and 30 April 2026); see our methodology. General information only, not financial advice.