What is the Medicare Levy Surcharge?
The Medicare Levy Surcharge is an extra tax of 1% to 1.5% on higher earners who go without private hospital cover. It is charged for every day you were above the income threshold and uncovered, and it lands as a tax bill rather than coming out of your pay.
It is not the Medicare levy
These two are constantly confused, and the names are the reason. They are separate charges with separate rules, and it is entirely normal to pay one and not the other.
The Medicare levy is the flat 2% almost every taxpayer contributes towards Medicare. The surcharge is an additional charge that only reaches higher earners, and only those without hospital cover. Buying cover removes the surcharge. It does nothing to the levy.
Medicare Levy
2% of taxable income. Paid by almost everyone. Hospital cover makes no difference to it.
Medicare Levy Surcharge
1% to 1.5% on top. Higher earners only. Disappears entirely if you hold eligible hospital cover.
If you are trying to work out the levy rather than the surcharge, the Medicare levy calculator covers the 2% charge and the low income reduction, and who is exempt from the levy covers the categories that pay none of it.
Who actually pays it
Two conditions have to be true at once. Your income for MLS purposes is above the threshold, and you held no eligible hospital cover. Fail one and the surcharge does not apply.
Singles, 2026-27
$105,001+
Assessed on your own income.
Couples and families, 2026-27
$210,001+
Assessed on combined income.
Three rate tiers sit above each entry point. The full breakdown by income and year is on the thresholds page.
How the surcharge is calculated
The rate is set by which tier your income falls into, starting at 1% and rising to 1.5% at the top. That part is straightforward. The part almost everyone gets wrong is what the rate is applied to.
It applies to your whole income, not just the amount above the threshold. Crossing the threshold by a single dollar makes the entire amount surchargeable. There is no tapering and no tax-free portion, which is why the surcharge behaves like a cliff rather than a slope.
Worked example: a single earner on $114,000, 2026-27
- Income sits in the first surcharge tier, so the rate is 1%.
- 1% of $114,000 is $1,140 for the year.
- It is not 1% of the $9,000 above the threshold, which would be $90.
Because the charge is all-or-nothing, the gap between owing nothing and owing $1,140 can be a modest pay rise. It is also why hospital cover often works out cheaper than the tax it removes, and why the comparison is worth running rather than assuming. The surcharge versus cover comparison sets the two costs side by side.
Couples are tested together but charged separately
This catches people out, because the two halves work differently and nobody expects that.
Your rate is decided by combined family income. If you earn $90,000 and your partner earns $130,000, neither of you is over the single threshold, but your combined income decides the tier you both sit in.
The surcharge is then calculated on each person’s own income at that rate. The higher earner pays more than the lower earner. Nobody pays a rate based on their income alone, and nobody pays on the combined figure.
What counts as income for MLS purposes
The surcharge does not use your taxable income. It uses a broader figure that adds back several amounts, which is how people on a modest salary sometimes find themselves above the threshold.
Taxable income
Reportable fringe benefits
Reportable employer super contributions
Total net investment losses
Exempt foreign employment income
Your spouse’s income, for the family test
Salary sacrificing into super is the clearest example of why this matters. It lowers your taxable income but is added straight back for the surcharge test, so it does not move you below the threshold.
Part-year cover is charged by the day
The surcharge is not all or nothing across the year. It is worked out on the days you were uncovered, so cover starting partway through the year removes the surcharge from that date onwards.
Take out an eligible policy on 1 January and you are liable for roughly half the annual amount, not the whole thing. This is also why waiting until you lodge your return to think about it is expensive: every day of delay is another day charged. What counts as an eligible policy is set out in what cover actually exempts you.
Four things people get wrong
“I have extras cover, so I am fine”
Extras cover pays for dental, optical and physio. It does nothing for the surcharge. Only a hospital policy from an Australian registered health insurer exempts you.
“Any hospital policy will do”
The excess has to be no more than $750 for singles or $1,500 for couples and families. A cheap high-excess policy can leave you paying the surcharge anyway.
“It comes out of my pay like the levy”
It does not. PAYG withholding does not collect the surcharge, so it surfaces at lodgement as a bill you were not expecting.
“My family threshold is the same as everyone’s”
It rises by $1,500 for each dependent child after the first, so a family with three children has a higher threshold than a couple with one.
Where it shows up at tax time
The surcharge is assessed at item M2 of the individual tax return. You are not asked to calculate it. You declare how many days you held eligible hospital cover, and the ATO works out the rest from your income and your spouse’s.
Your insurer sends the ATO a private health insurance statement, and for most people the days are prefilled in myTax. It is worth checking the figure rather than accepting it, particularly if you changed policies, changed insurers or moved between single and family cover during the year.
Because nothing is withheld through the year, the surcharge normally appears as part of a tax debt on your notice of assessment. A single earner on $164,001 sits in the top tier and faces $2,460 for the year, which is the point at which most people go looking for cover.
Medicare Levy Surcharge FAQs
What is the Medicare Levy Surcharge?
The Medicare Levy Surcharge is an extra tax of 1% to 1.5% of your income. It applies for any day in the financial year that you earned above the threshold and held no eligible hospital cover. For 2026-27 the surcharge starts above $105,001 for singles and $210,001 for couples and families.
Is the surcharge charged on my whole income or only the part above the threshold?
Your whole income for MLS purposes. This is the most common misunderstanding. Once you cross the threshold the rate applies to the entire amount, not just the excess. A single on $114,000 pays $1,140, not $90.
Does extras-only cover avoid the Medicare Levy Surcharge?
No. Dental, optical and physiotherapy cover do not exempt you. You need a hospital policy from an Australian registered health insurer, with an excess no higher than $750 for singles or $1,500 for couples and families.
Is my partner’s income counted for MLS?
Yes. Couples and families are tested against the family thresholds using combined income, so your partner’s earnings can push you into a higher rate. The surcharge itself is then calculated on each person’s own income, not on the combined figure.
I took out hospital cover partway through the year. Do I still pay?
Yes, but only for the days you were uncovered. The surcharge is calculated daily, so cover taken out on 1 January leaves roughly half a year exposed rather than the full amount.
Where does the Medicare Levy Surcharge appear on my tax return?
At item M2, Medicare levy surcharge, in the individual tax return. You declare the number of days you held eligible hospital cover, and the ATO calculates the surcharge from that and your income. It is not deducted from your pay during the year, so it usually arrives as part of a tax bill.
Work out what it would cost you
Enter your income, household and cover dates below. The calculator applies the 2026-27 thresholds and returns your surcharge for the year, pro-rated for any days you were covered.
It also prices eligible hospital cover against that number, so you can see which of the two is actually cheaper for your situation.
Income & Household
Health Insurance Details
1 July 2026 – 30 June 2027
The premium for eligible hospital cover. Not sure? The comparison below fills real prices in for you.
Advanced options
Must be $750 or less (singles) or $1,500 or less (families) to clear MLS.
Your result
-$929
Paying the surcharge looks cheaper
This compares your estimated Medicare Levy Surcharge against the cost of hospital cover for the selected period.
Income used
Taxable income + reportable benefits
MLS is a tax surcharge. Lifetime Health Cover loading is different. LHC increases hospital cover premiums if it applies.
FY 2026-27 coverage period
The later your cover starts in the financial year, the fewer days are covered and the more surcharge may remain payable.
The bottom line
On this income you sit under the 2026-27 surcharge threshold, so no Medicare Levy Surcharge applies. Hospital cover is then a health decision rather than a tax one, because there is no surcharge for it to offset.
Income Break-Even Point
$115,000
If your income stays above this line, private insurance is objectively cheaper than paying the surcharge.
ATO Policy Compliance
To clear MLS you need hospital cover with an excess of $750 or less (singles) or $1,500 or less (families). Extras-only cover does not count.
Compliant cover
Policies that clear your surcharge
To remove your $0 surcharge, you need hospital cover with an excess of $750 or less. These are the cheapest Bronze Plus policies from five major insurers.
Prices from privatehealth.gov.au, July 2026 release, for WA. The government rebate is applied for your income tier. Under-30 discounts are not included, so you may pay less. Links may earn us a commission at no cost to you.
MedibankBronze Plus Value
HBFLite Bronze Hospital Plus
BupaBronze Plus Simple Hospital
nibBronze Protect Hospital Plus
