If you earn above a certain income threshold and do not hold an appropriate level of private hospital cover, the Australian Tax Office will slug you with the Medicare Levy Surcharge (MLS). For high earners, this surcharge can cost thousands of dollars per year — often more than a basic private health insurance policy would. Yet many Australians still do not understand how the MLS works or whether they are affected. Let us fix that.
What Is the Medicare Levy Surcharge?
The MLS is a separate charge on top of the standard 2% Medicare Levy that all taxpayers pay. It is designed to encourage higher-income Australians to take out private hospital cover and reduce the burden on the public health system. The surcharge ranges from 1.0% to 1.5% of your taxable income, depending on how much you earn and your family status.
The key word is "hospital" cover. Extras-only policies covering dental, optical, and physiotherapy do not exempt you from the MLS. You need a policy with a hospital component that is compliant with the Private Health Insurance Act to avoid the surcharge.
Use our Medicare Levy calculator to see exactly how much MLS you might owe based on your current income and coverage status.
Income Thresholds for 2025-26
The MLS thresholds are based on your "income for MLS purposes," which includes taxable income, reportable fringe benefits, total net investment losses, and certain superannuation contributions. For singles, the thresholds for FY2025-26 are:
- $93,000 or below: No MLS applies
- $93,001 to $108,000: 1.0% surcharge
- $108,001 to $144,000: 1.25% surcharge
- $144,001 and above: 1.5% surcharge
For families (including couples with no children), the thresholds are doubled, with an additional $1,500 added for each dependent child after the first. A couple with two children would need a combined income above $187,500 before the MLS kicks in.
These thresholds have not been indexed to inflation for several years, which means bracket creep is gradually pulling more Australians into MLS territory. Someone earning $95,000 — a fairly typical professional salary — is now caught by the surcharge if they lack private hospital cover.
The Maths: MLS vs Private Health Insurance
Here is where it gets interesting. Let us compare the cost of paying the MLS versus buying a basic hospital policy for a single person on different incomes.
At $100,000 income with no private cover, the MLS at 1.0% costs $1,000 per year. A basic bronze hospital policy with a $750 excess typically costs between $900 and $1,300 per year, depending on your age and state. So at this income level, the decision is roughly cost-neutral — but with private cover, you at least get access to private hospital treatment as a bonus.
At $150,000 with no cover, the MLS at 1.5% costs $2,250 per year. That same bronze policy still costs $900 to $1,300 — meaning you save at least $950 per year by holding private cover. The higher your income, the more the MLS stings and the more compelling private health insurance becomes purely as a tax strategy.
Run your specific numbers through our salary calculator to see how the MLS affects your total tax liability and take-home pay.
Who Is Exempt from the MLS?
Several groups are automatically exempt from the MLS regardless of their income. These include:
- People earning below the $93,000 single threshold (or $186,000 for families)
- People who are not entitled to Medicare benefits (such as certain temporary visa holders)
- People classified as a "prescribed person" for the full financial year — typically meaning they were a Norfolk Island resident or covered under a reciprocal health care agreement
If you hold a valid Medicare card and earn above the threshold, you need private hospital cover to avoid the surcharge. There are no other exemptions.
The Lifetime Health Cover Loading Trap
There is another wrinkle that catches many Australians by surprise: Lifetime Health Cover (LHC) loading. If you do not take out private hospital cover before 1 July following your 31st birthday, you will pay a 2% loading on top of your premium for every year you delay, up to a maximum of 70%.
For example, if you first take out private hospital cover at age 40, you will pay a 20% loading on your premiums for the next 10 years. On a $1,200 annual policy, that is an extra $240 per year — or $2,400 over the loading period. The loading is removed after 10 continuous years of holding cover.
This means the real cost comparison for someone in their 30s or 40s is not just MLS versus a base premium — it is MLS versus a premium plus LHC loading. Even so, the numbers almost always favour holding cover once your income exceeds $110,000 to $120,000.
Salary Sacrificing and the MLS
Here is a strategy some accountants recommend: salary sacrificing into superannuation to bring your income below the MLS threshold. Since concessional super contributions reduce your taxable income, a well-timed salary sacrifice arrangement could push you below $93,000 and eliminate the surcharge entirely.
However, be aware that "income for MLS purposes" includes reportable super contributions above the standard SG amount. So if you salary sacrifice $10,000 into super, your taxable income drops by $10,000 but your MLS income only drops by a portion. It is worth modelling this carefully. Our superannuation calculator can help you estimate the tax impact of different contribution levels.
What Should You Do?
If you earn under $93,000 as a single or under $186,000 as a family, you can safely ignore the MLS. If you earn above those thresholds, do the maths. In most cases, a basic bronze hospital policy with a high excess is cheaper than the surcharge and gives you the option of private hospital treatment if you ever need it.
Compare policies using the government's PrivateHealth.gov.au comparison tool, and check whether your employer offers corporate health insurance rates — many large employers negotiate group discounts that can save 5% to 10% on premiums.
Whatever you decide, make sure you understand your full tax picture. Our Medicare Levy calculator and salary calculator together give you a complete view of what you owe and what you take home.