Medicare Levy Surcharge – What It Is and How to Avoid It
The Medicare Levy Surcharge is an extra tax paid by higher earners who do not hold private hospital cover. It is settled through your tax return, and for many people basic hospital cover costs less than the surcharge itself.
The Medicare Levy Surcharge (MLS) is an extra tax on higher earners who do not hold private hospital cover. It sits on top of the standard 2% Medicare Levy that most taxpayers pay, and it exists to take pressure off the public system by encouraging people who can afford cover to take it.
The part most people miss: it is worked out through your tax return, not billed separately. You can be liable for a full year of surcharge and only find out at lodgement.
Who pays it
What it costs
How to avoid it
The income thresholds
The thresholds are indexed most years. The figures below are for the 2026–27 financial year. Income for MLS purposes is a broader measure than your taxable income – it adds back things like reportable fringe benefits and super contributions, which is why people are sometimes caught unexpectedly.
| Tier | Singles | Families | Surcharge |
|---|---|---|---|
| Base | up to $105,000 | up to $210,000 | 0% |
| Tier 1 | $105,001 – $123,000 | $210,001 – $246,000 | 1.0% |
| Tier 2 | $123,001 – $164,000 | $246,001 – $328,000 | 1.25% |
| Tier 3 | $164,001 and above | $328,001 and above | 1.5% |
The family threshold increases by $1,500 for each dependent child after the first.
Close to a threshold? The surcharge applies to your whole income for the days you were uncovered, not just the amount above the line – so a small pay rise can cost far more than it looks. Talk to us before the end of the financial year, while it can still be planned around.
How to avoid paying it
You only need basic hospital cover – not extras, not top cover. Insurers will happily sell you more, but the surcharge exemption turns on hospital cover alone.
Two things worth checking before you buy:
- Cover must be held for the full year to exempt you for the full year. Take out a policy in March and you are still liable for the months before it.
- Some policies with very high excesses do not qualify. There is a maximum excess above which a policy stops counting for MLS purposes, so the cheapest policy on a comparison site is not automatically the one that exempts you.
Lifetime Health Cover loading – a separate trap
Distinct from the surcharge, and it catches people out because the two are often confused.
If you have not taken out private hospital cover by 1 July following your 31st birthday, a Lifetime Health Cover (LHC) loading is added to your premium – 2% for each year you delayed, up to 70%. It comes off once you have held cover continuously for ten years.
So delaying cover has two costs: the surcharge you pay now, and a permanently higher premium later.
Want to reduce your tax? Start with deductions
The surcharge is avoidable but not negotiable – you either held cover or you did not. Deductions are where there is actually room to move, and where most people leave money behind.
Working from home
Running a business
Planning ahead
It is all settled in your tax return
The surcharge, the Medicare Levy, your private health rebate and every deduction land in the same place: your annual return. That is also the point at which mistakes become expensive, because the year is over and the options are gone.
We prepare returns for individuals, investors and businesses, and we check the health cover position as part of that – including whether you were covered for the full year, and whether the surcharge was worth avoiding in your circumstances.