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Medicare Levy & Medicare Levy Surcharge (MLS) Guide Australia (2026–27)
- Authors
- Name
- Charlotte Smith
- https://x.com/CharlotteSmithAU
Medicare Levy & Medicare Levy Surcharge (MLS) Guide (2026–27)
Australia's universal public healthcare system, Medicare, guarantees Australian citizens and permanent residents access to free or subsidized medical, hospital, and pharmaceutical services.
To fund this system, the Australian Government levies two distinct healthcare taxes through the tax return system:
- The Medicare Levy (2.0%): Paid by most Australian tax residents.
- The Medicare Levy Surcharge (MLS) (1.0% to 1.5%): An additional surcharge imposed on higher-income earners who do not maintain appropriate private hospital insurance.
This guide explains how both taxes are calculated, low-income exemption thresholds, and how taking out private hospital cover can save you thousands in tax.
1. The Standard Medicare Levy (2.0%)
Most Australian resident taxpayers pay a standard 2.0% Medicare Levy on their taxable income when lodging their annual income tax return.
Low-Income Exemption & Phase-In Thresholds (2026–27)
To protect low-income earners and pensioners, the ATO provides full exemptions or concessional reduced rates:
| Taxpayer Status | Full Exemption (0% Levy) | Phase-In Taper Range (Reduced Levy) | Full 2.0% Levy Applies |
|---|---|---|---|
| Individual (Single) | Taxable income up to ~$26,000 | $26,001 – $32,500 | Above $32,500 |
| Family (Couple / Sole Parent) | Combined income up to ~$43,846 (+ ~$4,027 per child) | Phase-in range scales with family size | Above family phase-in ceiling |
| Seniors & Pensioners (SAPTO Singles) | Taxable income up to ~$41,089 | $41,090 – $51,361 | Above $51,361 |
In the phase-in range, the Medicare Levy is capped at 10% of the income above the threshold, ensuring low-income earners are not unfairly penalized.
2. The Medicare Levy Surcharge (MLS): Higher Income Earners
The Medicare Levy Surcharge (MLS) is an extra tax of 1.0%, 1.25%, or 1.5% levied on higher-income Australians who do not hold an eligible Australian private hospital insurance policy for themselves and their dependents.
Income Thresholds & MLS Surcharge Tiers (2026–27)
Income for MLS purposes includes your taxable income, reportable fringe benefits (RFBA), reportable super contributions, and net investment losses.
| MLS Tier | Single Income Threshold | Family / Couple Income Threshold* | MLS Surcharge Rate |
|---|---|---|---|
| Base Tier (No Surcharge) | $97,000 or less | $194,000 or less | 0.0% (No MLS) |
| Tier 1 | $97,001 – $113,000 | $194,001 – $226,000 | 1.0% |
| Tier 2 | $113,001 – $151,000 | $226,001 – $302,000 | 1.25% |
| Tier 3 | $151,001+ | $302,001+ | 1.5% |
*Family threshold increases by $1,500 for each dependent child after the first.
3. How to Avoid the Surcharge: Private Hospital Cover
If your individual income exceeds $97,000 (or $194,000 for a couple), holding an eligible Private Hospital Insurance policy with an Australian registered health insurer exempts you from paying the MLS.
The Tax Arbitrage: Insurance vs. Surcharge
Consider Alex, earning $160,000 per year (Tier 3 MLS rate = 1.5%):
- MLS Surcharge Payable to ATO: $160,000 \times 1.5% = $2,400 in extra tax.
- Basic Hospital Cover Cost: ~$1,300 per year.
- Net Financial Benefit: Alex takes out basic hospital insurance, avoids the $2,400 surcharge, and saves $1,100 in net cash while gaining private hospital access and ambulance cover.
Important: "Extras only" policies (dental/optical/physio) do NOT exempt you from the MLS. You must hold a policy that includes hospital cover with an excess of $750 or less for singles ($1,500 or less for families).
4. Lifetime Health Cover (LHC) Loading
If you do not take out private hospital cover before 1 July following your 31st birthday, you will incur a 2% Lifetime Health Cover (LHC) loading on your private health insurance premiums for every year you are aged over 30 when you eventually join (up to a maximum loading of 70%).
5. Calculate Your Medicare & Surcharge Liability
Model your Medicare obligations and determine whether private health insurance saves you money:
- Medicare Levy Calculator — Calculate standard 2% levy and check low-income exemptions.
- Medicare Levy Surcharge Calculator — Estimate MLS liability across single and family income tiers.
- Taxable Income Calculator — Determine assessable income after allowable deductions.