The Medicare Levy is 2% on top of income tax — but not everyone pays it, and high earners without private hospital cover face an even bigger hit through the Medicare Levy Surcharge. Here's how it all works.
The Medicare Levy is a 2% charge on your taxable income that helps fund Australia's public health system, Medicare. It is separate from income tax — it is calculated after your income tax and applied on top of it.
For most Australian tax residents, the Medicare Levy is simply 2% of their taxable income. For someone earning $80,000, that is $1,600 per year added to their income tax bill. It is automatically assessed by the ATO when you lodge your tax return and appears as a separate line on your notice of assessment.
Most Australian tax residents pay the Medicare Levy. However, a phase-in applies at lower income levels so that very low-income earners pay a reduced amount or nothing at all.
| Taxable Income (Singles) | Medicare Levy |
|---|---|
| Below $26,000 (approx.) | Nil — below low-income threshold |
| $26,001 – $32,500 (approx.) | Phase-in: 10% of income above threshold |
| $32,501 and above | Full 2% of taxable income |
The exact low-income threshold is adjusted annually. For families, the threshold is higher and increases with each dependent child. Medicare Levy phase-in thresholds are different for seniors and pensioners eligible for the Senior Australians and Pensioners Tax Offset (SAPTO).
A full or partial exemption from the Medicare Levy may apply in certain situations. These are general educational categories — individual eligibility requires assessment by the ATO or a registered tax agent:
Important: To claim a Medicare Levy exemption, you must apply through the ATO and meet specific eligibility criteria. The ATO may request supporting documentation including medical certificates or Medicare ineligibility certificates. Consult a registered tax agent for guidance on your eligibility.
The Medicare Levy Surcharge is where many higher income earners get caught unexpectedly. It is an additional tax — on top of both income tax and the standard Medicare Levy — that applies to higher earners who do not hold an appropriate level of private hospital cover.
The purpose is to reduce pressure on the public health system by incentivising higher earners to use private hospitals. The policy works by making the financial cost of not having private cover greater than the cost of holding it.
⚠️ The Trap: Many people assume that because they have private health insurance, they are safe from the MLS. This is only true if the private cover is an appropriate hospital cover with an annual excess of $750 or less for singles ($1,500 or less for couples/families). Extras-only cover does not count. Ambulance-only cover does not count.
The Medicare Levy Surcharge applies at different rates depending on income level. For 2025–26:
| Income Threshold (Singles) | MLS Rate | On $120,000 Income |
|---|---|---|
| $0 – $93,000 | 0% (no MLS) | N/A |
| $93,001 – $108,000 | 1.0% | $1,200 |
| $108,001 – $144,000 | 1.25% | $1,500 |
| $144,001 and above | 1.5% | $1,800 |
For families, the threshold is $186,000 combined income for 2025–26, increasing by $1,500 for each dependent child after the first.
The MLS is designed so that for many earners above $93,000, the cost of compliant private hospital cover is less than the MLS they would otherwise pay. Here is a general educational comparison:
These figures are general educational estimates only. Actual private health insurance costs vary significantly based on age, state of residence, level of cover, and individual health fund pricing. Consult a health insurance comparison service and a financial adviser for advice specific to your situation.
A related concept is Lifetime Health Cover (LHC) loading — an additional premium loading of 2% per year for every year after age 31 that a person delays taking out private hospital cover, up to a maximum of 70%. This is separate from the MLS but creates an additional financial incentive for younger Australians to consider hospital cover earlier.
No. Extras-only cover (covering things like dental, optical, and physiotherapy) does not satisfy the MLS requirement. You must hold hospital cover with an excess of $750 or less (singles) or $1,500 or less (couples/families) to avoid the surcharge. Always check with your health fund that your policy is MLS-compliant.
For MLS purposes, income includes taxable income, total reportable fringe benefits, total net investment losses, and reportable employer super contributions. This means some forms of salary packaging may still count toward the MLS threshold even though they reduce your taxable income. This is a complex area — consult a tax professional for your specific situation.
The family income threshold for the MLS is higher than the singles threshold — $186,000 for families in 2025–26, increasing by $1,500 per dependent child. So a couple with two children would have an MLS threshold of $189,000 combined income before the surcharge applies. Note that both spouses must hold hospital cover, or both may be liable for the surcharge.
No. Medicare is the public health insurance scheme. The Medicare Levy is the tax mechanism that partially funds it. Even if you never use Medicare services, you still pay the levy if you are an eligible Australian tax resident above the low-income threshold — unless you qualify for an exemption.