Medicare Levy Surcharge (MLS)
An additional 1%–1.5% surcharge on higher-income earners who don't hold private hospital insurance.
The Medicare Levy Surcharge (MLS) is an additional charge on top of the standard 2% Medicare levy, designed to encourage higher-income earners to take out private hospital insurance and reduce demand on the public health system. For 2026-27, MLS applies to singles with income above $105,000 and families above $210,000 (plus $1,500 per dependent child after the first).
The MLS rates are tiered: 1% for singles earning $105,001–$123,000 (families $210,001–$246,000), 1.25% for $123,001–$164,000 (families $246,001–$328,000), and 1.5% for income above $164,000 (families above $328,000). MLS income includes taxable income plus reportable fringe benefits, reportable super contributions, and net investment losses — it's a broader measure than taxable income alone.
You can avoid the MLS entirely by holding an eligible private hospital insurance policy (not just extras cover) with a permitted excess/co-payment of no more than $750 for singles or $1,500 for families. For most people above the threshold, the cost of private hospital insurance is less than the MLS — so the surcharge effectively creates a financial incentive to get private cover.
How it works
The Medicare Levy Surcharge is a separate, income-tested charge layered on top of the standard 2% Medicare levy, aimed at higher earners who choose not to hold private hospital insurance. Whether it applies depends on MLS income, which is a broader measure than ordinary taxable income — it also picks up reportable fringe benefits, reportable super contributions, and net investment losses, so someone who salary sacrifices heavily or negatively gears an investment property can be pushed into MLS territory even if their taxable income looks modest. The rate itself is tiered: it starts at 1% once income clears the base threshold, rises to 1.25% at the middle tier, and reaches 1.5% at the top tier, calculated on the whole of MLS income once a threshold is crossed.
MLS liability is worked out when your tax return is assessed, using your private health insurance statement to confirm how many days during the year you held an eligible hospital policy. If you held cover for the full year, no surcharge applies regardless of income. If you held no cover, or cover for only part of the year, the surcharge is calculated proportionally against the days you went without it. This is why private health insurers run marketing campaigns each June — taking out a policy before 30 June, even briefly, can avoid a full year's surcharge exposure for someone who has just crossed into surcharge income territory.
A common trap is assuming any private health policy avoids the surcharge — it must specifically be hospital cover, not an extras-only policy for dental and optical, and the excess or co-payment on the policy must sit at or below the permitted limit ($750 for singles, $1,500 for families) to count as eligible cover. Families also need to watch the per-child threshold increase: the family income threshold rises for each dependent child after the first, which can keep a larger family under the surcharge threshold even on an income that would trigger it for a couple without children. Because the tiers apply to the whole of income once a threshold is crossed, someone just over a tier boundary faces a noticeably larger surcharge than someone just under it.
Example: MLS on a single income of $115,000
A single taxpayer with MLS income of $115,000 and no private hospital cover for the full year sits in the first surcharge tier, between $105,000 and $123,000, where the rate is 1%.
1% of $115,000 is $1,150, charged on top of the standard 2% Medicare levy. Taking out an eligible hospital policy for the year would have avoided this charge entirely, even though the premiums might cost more or less than $1,150 depending on the level of cover chosen.
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Medicare Levy
A 2% levy on taxable income to help fund Australia's public healthcare system, Medicare.
Private Health Insurance Rebate
A government rebate that reduces the cost of private health insurance premiums, means-tested based on income and age.
Income Tax
Tax levied by the federal government on your taxable income, calculated using progressive tax brackets.
Salary Sacrifice
An arrangement where you direct part of your pre-tax salary into super (or other benefits), reducing your taxable income.