Understanding the Medicare Levy Surcharge (MLS)
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What is the Medicare Levy Surcharge?
The Medicare Levy Surcharge (MLS) is a surcharge imposed on Australian taxpayers who earn over $97,000 as a single or $194,000 as a couple/family each financial year who don’t hold an eligible private hospital insurance policy throughout the financial year. The surcharge is intended to ease pressure on the public health system by encouraging high-income earners to take out private hospital cover.
You may incur a surcharge of 1%, 1.25% or 1.5% depending on your annual taxable income for MLS purposes. You’ll be subject to the MLS for any period during a financial year that you don’t hold suitable private health cover that includes hospital admissions.
Your MLS is calculated based on the following criteria:
- Your family status
- Number of dependent children (if applicable)
- Individual or combined annual income
- Whether you hold an eligible private hospital cover.
Expert tips on the Medicare Levy Surcharge
Our health insurance expert, Steven Spicer, has some expert tips on the Medicare Levy Surcharge and private health insurance.
Steven Spicer
Executive General Manager – Health, Life & Energy
Consider your needs and avoid junk policies
Carefully consider what level of hospital cover will be suitable for your needs. While it can be tempting to get the lowest insurance premium option to avoid the MLS, many of these policies are nicknamed “junk policies” as they can provide next to no coverage.
Maximise your tax savings
If you are trying to maximise tax savings, you may like to consider holding hospital cover for the entire financial year. If your income exceeds the MLS threshold and you didn’t have hospital cover for part of the year, you’ll still incur the MLS for each day of that tax year that you didn’t hold an eligible hospital policy.
You may also need to pay Lifetime Health Cover Loading
If you don’t have hospital cover by 1 July following your 31st birthday, there’s also the Lifetime Health Cover (LHC) loading to consider. If you miss that date, LHC loading will increase your hospital premium from the age of 30 by 2% for every year you don’t have private hospital insurance. Depending on your age, you can stop this loading from increasing or completely avoid it by taking out hospital cover before the cut-off. There are some exemptions and exceptions to how LHC works, so it’s a good idea to speak to an expert about how this may impact you if you’re unsure.
How much is the Medicare Levy Surcharge?
Medicare Levy Surcharge income thresholds
The first MLS income threshold is $97,000 for singles and $194,000 for couples and families. The MLS is charged as a percentage of your total income for MLS purposes – this means that the higher your income is over the threshold, the more you will have to pay.
The table below illustrates the MLS rate that higher-income earners will pay if they don’t hold an eligible private hospital cover for the full financial year.1
| Medicare Levy Surcharge – Tax Brackets (all ages) | ||||
|---|---|---|---|---|
| Surcharge | 0% | 1% | 1.25% | 1.5% |
| Single income thresholds |
$97,000 or less ($0 payable) |
$97,001 – $113,000 (~$970 – $1,130 payable) |
$113,001 – $151,000 ($1,413 – $1,888 payable) |
$151,001+ (~$2,265+ payable) |
| Family income thresholds^ |
$194,000 or less ($0 payable) |
$194,001 – $226,000 (~$1,940 – $2,260 payable) |
$226,001 – $302,000 ($2,825 – $3,775 payable) |
$302,001+ (~$4,530+ payable) |
|
Retrieved from the Australian Taxation Office | Information current from 1 July 2024. Dollar amounts payable are rounded up. ^For families with children, thresholds increase by $1,500 for each child after the first. Families include couples, de facto couples, and single parents. |
||||
What is considered ‘income’ when it comes to the Medicare Levy Surcharge?
In addition to what you earn from employment, other factors can determine your income for MLS purposes. When these are taken into consideration by the Australian Taxation Office (ATO), you could end up paying a higher surcharge than what your income alone might suggest. The ATO considers the following when calculating the surcharge:1
- Your taxable income
- Any reportable fringe benefits
- Total net investment losses
- Exempt foreign employment income
- Your partner’s share of the net income of a trust account which has not otherwise been included in their taxable income
- Reportable super contributions.
For MLS purposes, you’re considered to be part of a family if you have a partner or child/dependant (who are Australian residents) for any part of the financial year and contributed to their maintenance. If you earn over the threshold, each member of the family will be required to hold valid private patient hospital cover for the full financial year to avoid the surcharge.
Avoiding the MLS
How to avoid the Medicare Levy Surcharge
If you earn over the income threshold, you will require a valid private hospital cover policy for the entire financial year to avoid paying the MLS at tax time. For private hospital cover to be valid, it must be taken out using a registered Australian health fund. All the funds on our site are registered, but some private health insurance policies on the market won’t exempt you from the surcharge.
Some health insurance policies that won’t exempt you include:
- A standalone extras cover (ancillary cover or general treatment) policy (i.e. not combined with eligible hospital cover)
- Cover provided by insurers that aren’t registered in Australia
- Most policies offered to overseas visitors
- Hospital policies with an excess greater than $750 for singles and $1,500 for families/couples.
Am I exempt from the Medicare Levy Surcharge?
You may have an exemption from paying some or all of the surcharge for the financial year if you:
- Aren’t entitled to Medicare benefits
- Are a foreign resident for tax purposes
- Are a blind pensioner
- Have obtained sickness allowance from Centrelink
- Can claim medical treatment on a Veterans’ Affairs Repatriation Health Card or through Defence Force arrangements.
Medicare Levy Surcharge vs private health insurance
You may wonder if it’s worth taking out private health insurance to avoid the MLS. Depending on your income and personal circumstances, you could save money by taking out private health insurance. Plus, you get the benefit of being covered for some of your private healthcare costs.
| Example income | MLS percentage | Total MLS |
|---|---|---|
| $100,000 | 1% | $1,000 |
| $120,000 | 1.25% | $1,500 |
| $150,000 | 1.5% | $2,250 |
| Health insurance policy | Average annual cost of hospital insurance |
|---|---|
| Basic | $1,256.52 |
| Bronze | $1,493.82 |
| Silver | $2,234.52 |
| Gold | $3,219.60 |
|
Source: Based on data from privatehealth.gov.au, current as of December 2024. This is the average cost for single-only hospital policies with an excess of $750 that exempts you from the MLS. This does not include any rebates, discounts or loadings. |
|
As you can see, a person with a yearly income of $120,000 could potentially take out a Bronze hospital policy for around the same cost as the MLS they would otherwise pay. Keep in mind, this is based on the average cost of hospital insurance policies across Australia, so it may be possible for you to find a policy at a lower price.
Medicare Levy vs Medicare Levy Surcharge
While the Medicare Levy Surcharge applies to those who earn over the MLS threshold without private hospital cover, the Medicare levy is something most taxpayers pay regardless of whether they hold private hospital insurance. The purpose of the Medicare levy is to support the public health system, while the surcharge is designed to encourage high-income earners to take out private hospital cover, reducing their burden on the public system.
The Medicare levy is a surcharge of 2% in addition to your income tax. Like the MLS, the Medicare levy is paid when you file your tax returns. If your taxable income means you are a low-income earner, you may be eligible for a Medicare levy reduction, depending on your circumstances.3
Keep in mind that if your income is over the MLS threshold and you don’t hold valid private health insurance for hospital admissions, you’ll pay both the Medicare levy and the surcharge unless an exemption applies.
Meet our health insurance expert, Steven Spicer
As the Executive General Manager of Health, Life and Energy, Steven Spicer is a strong believer in the benefits of private cover and knows just how valuable the peace of mind that comes with cover can be. He is passionate about demystifying the health insurance industry and advocates for the benefits of comparison when it comes to saving money on your premiums.
Want to know more about the Medicare Levy Surcharge?
1 Australian Taxation Office, Medicare levy surcharge. Accessed December 2024.
2Privatehealth.gov.au, Private Health Ombudsman data. Published December 2024.
3 Australian Taxation Office, Medicare levy. Accessed December 2024.
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