Medicare Levy Surcharge (MLS): Do You Need Private Health Insurance? (2026)
The Medicare Levy Surcharge costs 1% to 1.5% of your income if you earn over $97,000 (singles) or $194,000 (families) and don't have private hospital cover. Learn the income tiers, how to avoid the MLS, and whether private health insurance is worth it.
What is the Medicare Levy Surcharge?
The Medicare Levy Surcharge (MLS) is an additional tax of 1% to 1.5% of your taxable income, charged on top of the standard 2% Medicare levy, if you earn above certain income thresholds and do not hold private hospital cover from a registered health insurer. It is designed to encourage higher-income Australians to take out private health insurance and reduce the burden on the public hospital system. The MLS is entirely separate from the standard 2% Medicare levy — everyone pays the 2% levy regardless of their private health status (with some low-income exemptions), but only those above the MLS threshold without private cover pay the surcharge. The key point is that the MLS is avoidable: if you hold an eligible private hospital insurance policy (even the cheapest basic policy), you do not pay the surcharge. For many people above the threshold, the cost of basic private hospital cover is less than or comparable to the MLS itself, making it financially rational to take the cover even if you never use it. The MLS applies to Australian residents for tax purposes and does not apply to people who are eligible for a Medicare levy exemption (such as certain foreign residents).
MLS income thresholds and rates for 2025-26
The MLS has tiered rates based on your income level. For singles in 2025-26: income of $97,000 or below attracts no MLS; $97,001 to $113,000 attracts 1%; $113,001 to $151,000 attracts 1.25%; and $151,001 and above attracts 1.5%. For families (couples and single parents), the thresholds are doubled: $194,000 or below attracts no MLS; $194,001 to $226,000 attracts 1%; $226,001 to $302,000 attracts 1.25%; and $302,001 and above attracts 1.5%. The family threshold increases by $1,500 for each dependent child after the first. To put these rates in dollar terms: a single earner at $110,000 without private cover pays $1,100 in MLS (1%); at $130,000 it is $1,625 (1.25%); at $200,000 it is $3,000 (1.5%). These are significant amounts that make private health insurance a mathematical necessity at higher incomes. The thresholds are not indexed annually, so as wages grow, more people are pushed above the MLS threshold over time — a form of bracket creep that progressively increases the population subject to the surcharge.
What counts as MLS income?
MLS income is not simply your taxable income — it is a broader measure that includes several additional components. Your MLS income is calculated as: taxable income, plus reportable fringe benefits, plus total net investment losses (negative gearing losses that were used to reduce your taxable income), plus reportable super contributions (salary sacrifice amounts reported on your payment summary). This broader definition means common strategies to reduce taxable income — like salary sacrifice into super or negative gearing — do not help you avoid the MLS. For example, if your base salary is $105,000 and you salary sacrifice $10,000 into super, your taxable income drops to $95,000 (below the $97,000 threshold). However, the $10,000 is a reportable super contribution, so your MLS income is $95,000 plus $10,000 equals $105,000, which is above the threshold. Similarly, if your salary is $90,000 but you have $10,000 in negatively geared property losses, your taxable income might be $80,000 but your MLS income is $90,000 (the losses are added back). Understanding this definition is critical for accurate planning. The only reliable way to avoid the MLS above the threshold is to hold private hospital cover.
What private health cover satisfies the MLS exemption?
To be exempt from the MLS, you must hold an eligible private hospital insurance policy from a registered health insurer. The policy must include hospital cover — an extras-only policy (covering dental, optical, physio, etc.) does not count. The hospital cover can be any level: basic, bronze, silver, or gold. Even the most basic hospital policy with a high excess satisfies the MLS exemption. You must hold the cover for the full financial year to receive the full exemption. If you only hold cover for part of the year, the MLS is calculated on the days you were not covered. This means timing matters — if you take out cover on 1 January, you are only covered for half the year and will pay MLS for the first half. The policy must be with a registered Australian health insurer — overseas or travel insurance does not qualify. For couples, only one policy is needed covering both partners (or each partner can hold their own policy). If you are in a couple where one partner earns above the threshold and the other below, the family threshold applies based on combined income. Choosing the right policy involves balancing the premium cost against the MLS you would otherwise pay — in many cases, a basic hospital policy with a $750 excess is the cheapest option.
MLS versus private health insurance cost comparison
The decision to take private health or pay the MLS comes down to comparing costs. Consider a single earner at $120,000. Without private cover, the MLS at 1.25% costs $1,500 per year — money paid to the government with no health benefit in return. A basic hospital policy (bronze tier, $750 excess) typically costs $1,200 to $1,800 per year depending on age, state, and insurer. If the policy costs $1,500, you are spending the same amount but gaining hospital cover. If it costs $1,200, you save $300 while gaining cover. At higher incomes the comparison becomes even more favourable. A single earner at $180,000 faces a 1.5% MLS of $2,700 per year, while basic hospital cover remains $1,200 to $1,800 — saving $900 to $1,500 by taking the cover. The private health insurance rebate further reduces the cost of cover for incomes under $151,000 (singles) — you receive a percentage rebate on your premiums (ranging from 24.6% to 8.2% depending on age and income tier). At $120,000, the rebate is approximately 16.4% for under-65s, reducing a $1,500 policy to around $1,254. Compare policies at privatehealth.gov.au, the government comparison website, to find the cheapest compliant policy for your situation.
Salary sacrifice and the MLS: common misconceptions
One of the most common misconceptions about the MLS is that salary sacrificing into superannuation will reduce your income below the threshold and avoid the surcharge. As explained earlier, MLS income includes reportable super contributions, so salary sacrifice does not work for this purpose. However, there are some legitimate interactions worth understanding. Salary sacrifice into items that are not reportable fringe benefits — such as novated leases (which are FBT-exempt for electric vehicles) or certain work-related expenses — may reduce your taxable income without adding to MLS income, though the rules are complex and situation-specific. Making additional concessional super contributions (not through salary sacrifice but through personal contributions claimed as a tax deduction) results in reportable super contributions on your tax return, which are similarly added back for MLS purposes. The only reliable way to get your MLS income below the threshold is to genuinely earn less taxable income — not through salary packaging or sacrifice. For most people above the threshold, the pragmatic approach is to accept that the MLS will apply and take private hospital cover to avoid paying the surcharge. The cost of cover is a known, fixed expense that you can budget for, and it provides genuine health benefits.
Lifetime Health Cover loading: why age matters
The Lifetime Health Cover (LHC) loading is a separate but related incentive that interacts with the MLS decision. If you do not hold private hospital cover by 1 July following your 31st birthday, you pay a 2% loading on top of your hospital premiums for every year you are over 30 when you eventually take out cover. For example, if you first take out hospital cover at age 40, your premiums are 20% higher (10 years times 2%) for the next 10 continuous years of cover, after which the loading is removed. At age 50 without prior cover, the loading is 40% — adding hundreds of dollars per year to your premiums. The maximum loading is 70%. This creates a strong incentive to take out private hospital cover before age 31, even if you are below the MLS threshold. A 28-year-old earning $85,000 may not need private cover for MLS purposes, but taking it now locks in zero LHC loading for life. If that person waits until age 35 when their salary crosses $97,000, they face a 10% loading on premiums for a decade. The combined effect of MLS and LHC loading means the true cost of delaying private health insurance increases with both income and age. Use our Medicare Levy Calculator to model your specific situation and determine the optimal strategy.
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Official resources
General information and estimates only — not legal, financial, or tax advice. Always verify with the Fair Work Ombudsman (13 13 94) or a qualified professional.
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