Medicare Levy Surcharge (MLS): Who Pays & How to Avoid It
What Is the Medicare Levy Surcharge?
The Medicare Levy Surcharge (MLS) is an additional tax paid by higher-income Australians who do not have appropriate private hospital cover. It's charged on top of the standard Medicare Levy (2% of taxable income) and is designed to encourage people to take out private health insurance, reducing pressure on the public hospital system.
Income Thresholds (2025–26 and 2026–27)
For 2025–26, the MLS applies to singles earning over $101,000 and couples or families earning over $202,000 per year (ATO and privatehealth.gov.au figures). From 1 July 2026, those thresholds rise to $105,000 and $210,000 for the 2026–27 income year. The surcharge rate increases with income:
| Income Tier | Single | Family | MLS Rate |
|---|---|---|---|
| Tier 1 | $101,001–$118,000 | $202,001–$236,000 | 1% |
| Tier 2 | $118,001–$158,000 | $236,001–$316,000 | 1.25% |
| Tier 3 | $158,001+ | $316,001+ | 1.5% |
For families, the income threshold increases by $1,500 for each dependent child after the first.
How Much Does the MLS Cost?
Using 2025–26 rates:
- A single earning $120,000 without hospital cover pays 1.25% × $120,000 = $1,500 per year in MLS.
- A couple earning $250,000 without hospital cover pays 1.25% × $250,000 = $3,125 per year in MLS.
How to Avoid the MLS
You must hold an appropriate level of hospital cover. The policy must have a hospital excess of $750 or less per person ($1,500 or less per policy). Some Basic policies do not qualify — check with your fund that your policy is "MLS-compliant."
Extras cover alone does not help you avoid the MLS.
Is It Cheaper to Pay the MLS or Buy Insurance?
This depends on your income and age. A young single earner on $100,000 might pay $1,000 in MLS, whereas a Bronze hospital policy could cost $800–$1,200 per year — a close call. But remember: with insurance you also get actual cover (ambulance, hospital choice), and you avoid LHC loading if you're over 30.
For higher earners, insurance is almost always cheaper than the MLS alone.
What Happens If You Drop Cover Mid-Year?
If you cancel hospital cover during the year, you may have to pay the MLS for the months you were not covered. The ATO calculates the MLS proportionally. Some people are caught out when switching jobs or policies — ensure there's no gap.
What Counts as Income for the MLS
The surcharge is calculated on your income for MLS purposes — not just your taxable income. The ATO adds reportable fringe benefits, reportable superannuation contributions and net investment losses. This matters for two reasons: a salary package with a big car or super component can push you over a threshold even if your payslip looks modest, and personal deductible super contributions can pull you back under it. If you are close to the $101,000 single threshold, run the ATO's numbers before assuming you are exempt.
A 2026 Worked Example
Consider a single earning $130,000 in 2025–26 with no hospital cover. They fall in Tier 2, so the surcharge is 1.25% × $130,000 = $1,625 a year — on top of the standard 2% Medicare Levy. A Bronze hospital policy for that age group typically costs roughly $1,000–$1,400 a year before the rebate, so the insurance is likely to be cheaper than the surcharge alone, and it also delivers real cover. For a couple on $250,000 in Tier 2, the MLS is 1.25% × $250,000 = $3,125 a year — comfortably more than most family hospital policies.
Checking Your Compliance
- Confirm your policy is hospital cover with an excess of $750 or less per person ($1,500 per policy).
- Ask your fund in writing whether the policy is MLS-compliant.
- Hold the cover for the full income year — dropping it mid-year means the ATO calculates the surcharge proportionally.
- Recheck your tier after any income change or job move.
New Migrants and the MLS
If you are a recent arrival, check whether you qualify for a Medicare levy exemption in your first year — the ATO grants exemptions for new migrants in limited circumstances, and the MLS is calculated on the same basis. Once you become an eligible Medicare resident, the standard MLS rules apply like anyone else's, so factor hospital cover into your plans from your first full income year in Australia.