Medicare levy and Medicare levy surcharge: how each is calculated
The 2% Medicare levy, the low-income reduction, exemptions, and how the separate Medicare levy surcharge of 1% to 1.5% works for higher earners without hospital cover.
Most Australian residents pay a Medicare levy of 2% of taxable income, collected with income tax. People on low incomes pay a reduced levy or none, and some people are exempt. The Medicare levy surcharge (MLS) is a separate, additional charge of 1%, 1.25% or 1.5% that applies only if your income for MLS purposes is above a threshold and you (and your family) do not hold an appropriate level of private hospital cover. For 2026–27, the ATO lists the single base threshold as $105,000 and the family base threshold as $210,000.
The two are often confused. The levy funds Medicare and almost everyone pays it; the surcharge is designed to push higher earners toward private hospital insurance. This guide explains both from a tax-calculation angle. It is general information, not advice about choosing health insurance.
The Medicare levy
The levy is 2% of your taxable income, not of gross salary. Deductions therefore reduce it, and so does salary sacrifice.
Illustrative example: taxable income of $72,000 gives a levy of 2% × $72,000 = $1,440.
The levy is part of your marginal rate: someone in the 30% bracket loses 32c of each extra dollar to tax and levy. This is why the salary sacrifice calculator asks for your marginal rate including the levy.
Low-income reduction
If your taxable income is below the low-income threshold, you pay no levy. Above it, the levy phases in at 10c for each dollar over the threshold until it reaches the full 2%. The thresholds are lifted most years in the Federal Budget and apply to the year being lodged.
| Category | Threshold for 2025–26 (legislated June 2026) | How the phase-in works |
|---|---|---|
| Single | $28,011 | 10% of income above $28,011 until the full 2% applies (from $35,013) |
| Family | $47,238 plus $4,338 per dependent child | Based on combined family income |
| Single seniors and pensioners (eligible for SAPTO) | $44,268 (full levy from $55,335) | Families eligible for SAPTO: $61,623 plus $4,338 per child |
Illustrative phase-in for 2025–26: a single person with taxable income of $30,000 pays 10% × ($30,000 − $28,011) = $198.90, compared with $600 at the full 2%.
Exemptions
You may be fully or partly exempt if, for example, you were a foreign resident, you were not entitled to Medicare benefits (for instance some temporary visa holders, who need a Medicare Entitlement Statement from Services Australia), or you fall into certain medical or defence categories. Exemptions are claimed in your tax return and are based on the number of days in each category.
The Medicare levy surcharge
The MLS applies on top of the levy if all of these are true for a period in the year:
- Your income for MLS purposes is above the threshold for your category.
- You do not have an appropriate level of private patient hospital cover for yourself and your dependants. Extras-only cover does not count.
- You are not otherwise exempt.
Income for MLS purposes
It is wider than taxable income. It generally adds back:
- reportable fringe benefits (shown on your income statement);
- total net investment losses, such as a negatively geared rental loss;
- reportable super contributions, including salary sacrifice and personal deductible contributions;
- certain exempt foreign employment income.
Your spouse's income is included when testing the family threshold. This is the trap many people miss: salary sacrifice and rental losses reduce taxable income but not income for MLS purposes.
Rates and thresholds
| Tier | 2025–26 single | 2025–26 family | Surcharge rate |
|---|---|---|---|
| Base | $101,000 or less | $202,000 or less | 0% |
| Tier 1 | $101,001 – $118,000 | $202,001 – $236,000 | 1% |
| Tier 2 | $118,001 – $158,000 | $236,001 – $316,000 | 1.25% |
| Tier 3 | $158,001 or more | $316,001 or more | 1.5% |
For 2026–27 the thresholds are indexed under the Private Health Insurance Act 2007 (ss 22-35 to 22-45):
| Tier | 2026–27 single | 2026–27 family | Surcharge rate |
|---|---|---|---|
| Base | $105,000 or less | $210,000 or less | 0% |
| Tier 1 | $105,001 – $123,000 | $210,001 – $246,000 | 1% |
| Tier 2 | $123,001 – $164,000 | $246,001 – $328,000 | 1.25% |
| Tier 3 | $164,001 or more | $328,001 or more | 1.5% |
Family thresholds are double the single ones. Confirm the figures on the ATO's Medicare levy surcharge page before you decide on cover. The family threshold increases by $1,500 for each dependent child after the first.
The surcharge rate applies to the total of your taxable income, reportable fringe benefits and certain other amounts, not only to the amount above the threshold. It is charged per day without cover.
Worked comparison: surcharge versus hospital cover
Illustrative example, single, 2026–27, income for MLS purposes of $120,000, assumed to be in tier 1 at 1%:
- Surcharge for a full year without cover: 1% × $120,000 = $1,200.
- A basic hospital policy that qualifies might cost more or less than that; premiums depend on the insurer, state, excess and age (and any Lifetime Health Cover loading).
- If a qualifying policy cost $1,100 a year after the rebate, holding it saves about $100 compared with paying the surcharge, plus you have hospital cover. If it cost $1,600, the surcharge is cheaper in pure dollar terms.
The policy must have an excess no higher than the limit set for MLS purposes (the limits were raised in 2025; check the current figures with the Private Health Insurance Ombudsman's website). For a detailed comparison of policies, use an independent government source such as privatehealth.gov.au rather than a commission-based comparison site.
Common mistakes
- Assuming salary sacrifice keeps you under the MLS threshold. It does not; reportable super contributions are added back.
- Forgetting the spouse. Families are tested on combined income, and a single person who marries mid-year changes category.
- Holding cover for part of the year. The surcharge is calculated on the days without cover. Use the private health insurance statement details in your return.
- Confusing the MLS with Lifetime Health Cover loading. LHC is a premium loading charged by insurers, not a tax.
FAQ
Do I pay the Medicare levy if I have private health insurance?
Yes. Private cover only affects the surcharge. The 2% levy is paid regardless.
Is the levy charged on my salary sacrifice amount?
No, because salary sacrifice reduces taxable income and the levy is based on taxable income. The surcharge income test is different.
Can I get the levy back if I am on a temporary visa?
If you were not entitled to Medicare, you can claim an exemption in your return using a Medicare Entitlement Statement from Services Australia.
Does a rental loss reduce the surcharge?
No. Net investment losses are added back when working out income for MLS purposes.
Sources
- Australian Taxation Office — Medicare levy, reduction thresholds, exemptions and Medicare levy surcharge tables
- Services Australia — Medicare Entitlement Statements
- privatehealth.gov.au — government information on private hospital cover
- Federal Register of Legislation — Medicare Levy Act 1986
Related: income tax rates, step-by-step tax calculation, negative gearing example.
