Medicare Levy Rate 2026 Australia — 2% + MLS Thresholds Explained

About the Medicare Levy Surcharge (MLS) is an additional tax of 1%–1.5% of your taxable income charged by the ATO if you earn above certain thresholds and don't have an appropriate level of private hospital cover. It's separate from the standard 2% Medicare levy that most taxpayers pay. The MLS is designed to encourage higher-income earners to take out private health insurance and reduce demand on the public hospital system.

The surcharge applies to singles earning over $101,000 and families earning over $202,000 (for 2025-26). If you hold a compliant private hospital insurance policy, you're exempt from the MLS regardless of your income level.

For the MLS operates on a tiered system based on your income for MLS purposes (which includes taxable income, reportable fringe benefits, and total net investment losses). For singles: Tier 0 (no surcharge): $101,000 or less. Tier 1 (1.0%): $101,001–$118,000.

Tier 2 (1.25%): $118,001–$158,000. Tier 3 (1.5%): $158,001 and above.

For families, the thresholds are doubled: Tier 0: $202,000 or less. Tier 1: $202,001–$236,000. Tier 2: $236,001–$316,000. Tier 3: $316,001 and above (more on this below).

The family threshold increases by $1,500 for each dependent child after the first. For example, a couple with 3 children has a Tier 0 threshold of $202,000 + (2 × $1,500) = $205,000.

At $110,000 income (Tier 1): MLS = $1,100 per year ($21.15/week). At $120,000 income (Tier 2): MLS = $1,500 per year ($28.85/week). At $150,000 income (Tier 2): MLS = $1,875 per year ($36.06/week).

At $200,000 income (Tier 3): MLS = $3,000 per year ($57.69/week). At $300,000 income (Tier 3): MLS = $4,500 per year ($86.54/week).

At $500,000 income (Tier 3): MLS = $7,500 per year ($144.23/week). The MLS is calculated on your full taxable income, not just the amount above the threshold. This means crossing from $101,000 to $101,001 results in a sudden $1,010 surcharge — there's no gradual phase-in like the standard Medicare levy. This cliff effect makes it essential to check whether private hospital cover is cheaper than the surcharge at your income level.

The only way to avoid the MLS is to hold a compliant private hospital insurance policy for the entire financial year. Key requirements: the policy must include hospital cover (extras-only policies don't count), it must be with a registered Australian health fund, and you must be covered for every day of the income year. The cheapest compliant policies (basic hospital with high excess) typically cost $1,000–$1,300 per year — less than the MLS for anyone earning over $101,000.

Other strategies to manage MLS exposure: salary sacrifice into super to reduce your MLS income below the threshold (but be aware of the $30,000 cap), claim tax deductions to reduce taxable income, and if you have a spouse, ensure they also have hospital cover (both partners need cover for the family exemption). Use our Medicare Levy Calculator to see your exact MLS cost and our Private Health Decision Tool to compare it against insurance premiums.

Myth: 'Extras cover avoids the MLS.' Wrong — you need hospital cover specifically. Extras-only policies for dental, optical, and physio do NOT satisfy the MLS exemption. Myth: 'I didn't earn over the threshold all year.' The MLS is based on your annual income.

Even if you only earned over $101,000 for part of the year, the surcharge applies for the portion of the year you didn't have cover. Myth: 'My employer provides health insurance.' Unlike the US, very few Australian employers provide health insurance.

Some NFP and hospital employees can salary package premiums pre-tax, but you still need to actively choose a policy. Common mistake: Letting your policy lapse.

If your policy lapses for even one day and your income is above the threshold, you'll pay the MLS for that period.

Set up direct debit to avoid accidental lapses.

Common mistake: Not declaring your private health insurance on your tax return. You must include your private health insurance statement (from your insurer) when lodging your tax return to claim the MLS exemption.