Health · Australia

Medicare Levy Surcharge 2026–27: Rates, Thresholds & How to Avoid It

The Medicare Levy Surcharge (MLS) is the government's nudge to take out private hospital cover. If you earn above the threshold and go without, you pay an extra tax — and above a certain income, a basic policy is often cheaper than the surcharge itself. Here's exactly how it works.

It's separate from the 2% Medicare levy

Almost everyone pays the 2% Medicare levy. The Medicare Levy Surcharge is a separate, additional 1%–1.5% charged only to higher earners who don't hold private hospital cover.

2026–27 rates and thresholds

Income (single / family)	Surcharge
Up to $105,000 / $210,000	0%
$105,001–$123,000 / $210,001–$246,000	1%
$123,001–$164,000 / $246,001–$328,000	1.25%
Above $164,000 / $328,000	1.5%

Family thresholds add $1,500 per dependent child after the first. "Income for surcharge purposes" is broader than taxable income — it adds back reportable fringe benefits, super contributions and investment losses.

Worked examples

• Single on $130,000, no cover: 1.25% × $130,000 = $1,625 surcharge (Tier 2). Basic hospital cover often costs less — so cover is roughly free after tax, and you actually get something for it.
• Single on $200,000, no cover: 1.5% × $200,000 = $3,000 surcharge. Well above most basic premiums — cover almost always wins here.
• Single on $90,000: below the threshold — $0 surcharge. Cover is optional on tax grounds.

Working out whether you actually pay

The test is not your salary. It is income for MLS purposes, which is deliberately broader: taxable income, plus reportable fringe benefits, plus reportable employer super contributions, plus any net investment losses added back. People who negatively gear property or salary-sacrifice heavily are routinely caught despite a modest headline salary.

It is also assessed on a family basis if you have a spouse or dependants — the combined figure against the family threshold, not your own income against the single one.

The surcharge is pro-rated daily

You are liable only for the days you were both above the threshold and without appropriate hospital cover. Taking out cover part-way through the year cuts the surcharge proportionally rather than wiping it — and conversely, dropping cover for a single month above the threshold creates a small liability most people never expect.

What counts as "appropriate" cover

• It must be a hospital policy from a registered Australian insurer. Extras or ancillary cover alone does not exempt you, however comprehensive it looks.
• The policy excess must not exceed the legislated cap — a high-excess policy can fail the test and leave you paying the surcharge anyway despite holding cover.
• Overseas visitor or travel health cover generally does not qualify.

The cover-versus-surcharge calculation

Above the Tier 1 threshold a basic hospital policy frequently costs about the same as the surcharge, or less — so you end up with actual cover for roughly the money you would have handed to the ATO. Below the threshold there is no tax argument at all, and cover becomes a purely personal decision.

Two things push the answer toward taking cover earlier than the pure maths suggests: the private health insurance rebate reduces your premium on an income-tested scale, and Lifetime Health Cover loading adds 2% to your premium for every year you delay past 31, up to 70% — a permanent penalty that makes waiting progressively more expensive.

Exemptions worth knowing

• Below the base threshold for the whole year, no surcharge applies regardless of cover.
• Some people are exempt from the Medicare levy itself — certain foreign residents and people not entitled to Medicare benefits — and that generally carries through to the surcharge.
• The family threshold rises by $1,500 for each dependent child after the first, which can pull a household back under the line.

Frequently asked questions

What is the Medicare Levy Surcharge for 2026–27?
The Medicare Levy Surcharge (MLS) is an extra 1%, 1.25% or 1.5% tax on people who do not hold private hospital cover and earn above the income thresholds. It is on top of the standard 2% Medicare levy that most taxpayers pay.

What are the Medicare Levy Surcharge income thresholds?
For 2026–27 (singles): no surcharge up to $105,000, 1% from $105,001–$123,000, 1.25% from $123,001–$164,000, and 1.5% above $164,000. Family thresholds are double, plus $1,500 per dependent child after the first.

How do I avoid the Medicare Levy Surcharge?
Hold an appropriate level of private hospital cover (not just extras/ancillary cover) for the full year. If you are above the threshold, a basic hospital policy often costs about the same as, or less than, the surcharge you would otherwise pay.

Is the Medicare Levy Surcharge the same as the Medicare levy?
No. Almost everyone pays the 2% Medicare levy. The Medicare Levy Surcharge is an additional 1%–1.5% charged only to higher earners who go without private hospital cover.

Sources

• ATO — Medicare Levy Surcharge income thresholds and rates (2026–27)
• PrivateHealth.gov.au — surcharges and incentives

Figures as of June 2026 (2026–27 thresholds). Verify on ato.gov.au. This is general information, not financial or health advice (ASIC RG 244). See also our private health rebate guide.