10 March 2026
How to Avoid the Medicare Levy Surcharge
As we move toward the 2025–26 financial year-end, our team is focused on one goal: ensuring you don't pay more tax than you absolutely have to. One of the most common "hidden costs" we see on tax returns is the Medicare Levy Surcharge (MLS).
If your income is over a certain level, the government effectively "fines" you for not having private hospital cover. Here is a breakdown of how it works and how you can stop the tax leak.
The "Two-Levy" Trap: Know the Difference
Many people confuse the standard Medicare Levy with the Surcharge. Here is the reality:
- The 2% Medicare Levy: This is a standard tax most Australians pay to fund our public health system.
- The 1% to 1.5% Surcharge: This is an extra tax on top of the 2%. It only applies if you earn over the threshold and do not have private hospital insurance.
Are You in the Target Zone? (2025–26)
Threshold |
Base tier |
Tier 1 |
Tier 2 |
Tier 3 |
Single threshold |
$101,000 or less |
$101,001 – $118,000 |
$118,001 – $158,000 |
$158,001 or more |
Family threshold |
$202,000 or less |
$202,001 – $236,000 |
$236,001 – $316,000 |
$316,001 or more |
Medicare levy surcharge |
0% |
1% |
1.25% |
1.5% |
The ATO calculates your liability based on "Income for MLS Purposes." This includes your salary, reportable super contributions, and fringe benefits.
- Singles: If you earn over $101,000, you are liable for the surcharge if you don’t have hospital cover.
- Families: If your combined income is over $202,000, the surcharge applies if you don’t have appropriate cover for all dependents.
- Large Families: The threshold increases by $1,500 for every dependent child after the first.
Your Exemption Checklist
To stop paying the surcharge, your private health insurance must meet these strict criteria:
- Hospital Cover Only: You must have "Hospital Cover." Unfortunately, "Extras-only" cover (like dental or physio) does not provide an exemption on its own.
- The $750/$1,500 Rule: Your policy excess must be $750 or less (for singles) or $1,500 or less (for families/couples).
- Total Household Coverage: Every member of your family—spouse and all dependent children—must be on a compliant policy.
The Daily Cost of Delay
The MLS is calculated on a daily basis.
- Full Year vs. Part Year: You only get an exemption for the specific days you are covered.
- Tip: If you take out a policy today, you won’t eliminate the surcharge for the months you were uncovered earlier this year, but you will stop the "tax leak" for every day moving forward.
Redirecting Your Tax Dollars
In many cases, the annual cost of a basic private hospital policy is actually less than the extra tax you would pay through the surcharge. By taking out insurance, you effectively trade a "tax penalty" for "private health benefits"—often saving money in the process.
Let’s Review Your Position
Because the ATO’s definition of "income" for this surcharge is complex, it’s easy to miscalculate your tier. We recommend a quick review of your projected income before June 30.
Would you like our team to run a quick calculation to see if a basic hospital policy could save you on your next tax return?
Get in touch with us today!
