How to Avoid the Medicare Levy Surcharge
Earn over $101,000 without private hospital cover and the Medicare Levy Surcharge takes up to 1.5% of everything — the FY2025-26 thresholds and maths.
The Medicare Levy Surcharge (MLS) is an extra tax on higher earners who don't have private hospital insurance. It stacks on top of the standard 2% Medicare levy — the small tax most people already pay to help fund public healthcare.
It's designed to nudge you into the private health system, and depending on your income, copping the surcharge can cost more than the policy it's punishing you for skipping. Here's who pays, how much, and the maths for deciding what to do.
Where the fine starts: FY2025-26 thresholds for singles
The surcharge switches on once your 'income for MLS purposes' — a special, wider income measure explained below — crosses the base threshold, then climbs through tiers.
For singles in FY2025-26:
- Up to $101,000 — no surcharge
- Over $101,000 — 1% surcharge
- Over $118,000 — 1.25% surcharge
- Over $158,000 — 1.5% surcharge
The cliff: it taxes every dollar, not just the extras
Most tax is marginal — higher rates only hit the dollars above each line. The surcharge isn't: cross a threshold and it applies to your entire income for MLS purposes, not just the slice above the line.
And that income measure is wider than your taxable income. It adds back work perks you get instead of salary (fringe benefits), reported extra super contributions, and investment losses — so running a rental property at a loss (negative gearing) won't sneak you under the threshold.
🪤The trap
Earn $100,000 and pay nothing. Earn $102,000 and pay 1% of the whole $102,000 — a $1,020 tax bill triggered by a $2,000 pay rise.
The escape hatch
Hold a proper private hospital insurance policy for the full financial year and the surcharge vanishes. Extras-only cover — dental, optical, physio — doesn't count; it must be hospital cover.
Covered for only part of the year? You pay the surcharge for the uncovered days, worked out day by day.
Couples and families get thresholds roughly double the single ones, and both partners generally need cover to make the surcharge go away.
📅Quick win
The escape is counted by the day. If you're near a threshold, sorting cover before 1 July beats a panicked December sign-up that still leaves months of surcharge owing.
The maths: a $1,500 fine vs a $1,200 policy
Single on $120,000? Your surcharge is 1.25% of $120,000 — $1,500 a year.
Basic entry-level hospital policies frequently cost less. If one runs you around $1,200 a year, you're $300 ahead and holding hospital cover you didn't have before — even if you never claim on it.
At $105,000 the surcharge is $1,050, so it's a closer call. Below the $101,000 threshold there's no fine to dodge, and the decision is purely about whether you value the insurance itself.
The bottom line
If you're comfortably above $101,000 as a single, price the cheapest qualifying hospital policy against your surcharge tier. In many cases the policy wins.
Just don't grab junk cover blindly — check the policy actually gets you out of the surcharge, and weigh whether slightly better cover is worth the extra dollars.
Not sure where your income for MLS purposes will land? Run your salary through our calculator.
FAQ
Does extras-only health insurance avoid the surcharge?
No. Only a proper private hospital insurance policy gets you out of the Medicare Levy Surcharge. Extras cover for dental, optical, or physio doesn't count on its own.
Is the surcharge only on income above the threshold?
No — that's the trap. Once you cross a threshold, the surcharge rate applies to your entire income for MLS purposes, not just the amount over the line.
What income counts for the Medicare Levy Surcharge?
It starts with your taxable income, then adds back things like work perks that get reported (fringe benefits), reported extra super contributions, and investment losses. It usually lands higher than plain taxable income.
Run your own numbers
Sources: figures checked against ATO published rates and thresholds for FY2025-26 at the review date. See how we check our numbers.
⚠️ General information only — not tax or financial advice. Figures relate to FY2025-26 unless stated otherwise.