How to Avoid the Medicare Levy Surcharge (2025–26)
The MLS is an additional 1%–1.5% tax if you earn above the threshold without qualifying hospital cover — this guide covers who pays, what qualifies, and how to avoid it.
In this guide
- 1. MLS income thresholds for 2025–26
- 2. What counts as income for MLS purposes
- 3. How to avoid the MLS: step by step
- 4. Is hospital cover cheaper than paying the MLS?
- 5. The cheapest way to avoid MLS
- 6. Lifetime Health Cover loading
- 7. Why salary sacrifice doesn't reduce your MLS
- 8. Can you avoid MLS without hospital cover?
- 9. 2025–26 threshold increase: what changed
- 10. Medicare Levy vs Medicare Levy Surcharge
- 11. Common mistakes that still trigger MLS
- 12. Frequently asked questions
MLS income thresholds for 2025–26
The MLS rate depends on your income for MLS purposes and your family status. If your income is below the base threshold, the surcharge does not apply — regardless of whether you hold hospital cover.
| Tier | Singles | Families | MLS rate |
|---|---|---|---|
| Base | $101,000 or less | $202,000 or less | 0% |
| Tier 1 | $101,001 – $118,000 | $202,001 – $236,000 | 1.0% |
| Tier 2 | $118,001 – $158,000 | $236,001 – $316,000 | 1.25% |
| Tier 3 | $158,001+ | $316,001+ | 1.5% |
Family threshold increases by $1,500 per dependent child after the first. Source: ATO — MLS income thresholds and rates
Try this scenario
Enter your income to see which MLS tier you fall into and how much the surcharge would cost.
Check your MLS tierWhat counts as income for MLS purposes
MLS is not assessed on taxable income alone. The ATO uses a broader measure called income for MLS purposes, which includes:
- Taxable income — your assessable income minus deductions (excluding any assessable First Home Super Saver released amount)
- Reportable fringe benefits — the grossed-up value of fringe benefits shown on your payment summary (e.g. novated car leases, living-away-from-home allowances)
- Reportable super contributions — reportable employer super contributions (above the SG minimum) plus deductible personal super contributions
- Total net investment losses — includes both net financial investment losses (e.g. share losses) and net rental property losses (negative gearing)
- Family trust distribution tax — the amount on which family trust distribution tax has been paid
Worked example: MLS income calculation
Even though the taxable income is $95,000 (below the $101,000 threshold), the MLS income of $108,000 places this person in Tier 1 — liable for 1% MLS without qualifying hospital cover.
Try this scenario
See how fringe benefits and super contributions push this example above the threshold. Enter $95,000 taxable income with $4,200 in fringe benefits, $5,000 in super contributions, and $3,800 in net investment losses.
Run this exampleHow to avoid the MLS: step by step
Step 1: Check if your income exceeds the MLS threshold
Calculate your income for MLS purposes (not just taxable income — see above). For 2025–26, MLS applies when this figure exceeds $101,000 for singles or $202,000 for families. If you are below the threshold, you do not need hospital cover to avoid MLS.
For singles
Your MLS income is assessed individually. The threshold is $101,000 for 2025–26.
For couples
Your combined income is assessed, with a family threshold of $202,000. Even if only one partner earns above the single threshold, MLS is assessed on the combined family income.
For families
The base family threshold is $202,000, increasing by $1,500 for each dependent child after the first. A family with three children has a threshold of $205,000.
Step 2: Get qualifying private hospital cover
Not all health insurance policies qualify. To be exempt from MLS, your policy must meet all of the following:
- Cover hospital treatment — extras-only and ambulance-only policies do not count
- Be issued by a registered Australian health insurer — overseas or travel policies do not qualify
- Have an excess of $750 or less for singles, or $1,500 or less for couples/families
Even a basic or restricted hospital policy (sometimes called "budget" or "entry-level" cover) qualifies for MLS exemption, as long as it meets these three requirements.
Step 3: Hold cover for the full financial year
To avoid MLS entirely, you must hold qualifying cover for every day of the financial year (1 July 2025 to 30 June 2026). The ATO calculates MLS on a daily basis — any gap in cover triggers a pro-rated charge.
If you took out cover partway through the year, you can use the partial-year MLS calculator to see exactly how much MLS applies for the uncovered period.
Step 4: Cover all family members
For couples and families, all members of the family unit must hold qualifying hospital cover. If your spouse or any dependent child is not covered, MLS may still apply to the family.
Step 5: Report it on your tax return
Your health insurer provides a Private Health Insurance Statement each year (usually available in your insurer's online portal by August). Include these details when you lodge your tax return. If you use myTax, much of this is pre-filled by the ATO.
Is hospital cover cheaper than paying the MLS?
For most people above the threshold, basic hospital cover costs less than the surcharge. The higher your income, the more you save by holding cover — because MLS is a percentage of your total income, while cover premiums are a flat annual cost.
What this means in dollars
Single, $120,000 income, no hospital cover (Tier 2)
$1,500/year in MLS
Basic hospital cover after the PHI rebate costs around $1,060/year. Holding cover saves approximately $440/year — and you get hospital insurance as well.
What this means in dollars
Single, $170,000 income, no hospital cover (Tier 3)
$2,550/year in MLS
Even without any PHI rebate (Tier 3 earners receive 0% rebate if under 65), basic hospital cover at around $1,400/year saves over $1,100/year compared to paying the surcharge.
What this means in dollars
Couple, $250,000 combined income, no hospital cover (Tier 2)
$3,125/year in MLS
Couple hospital cover costs around $2,800/year before the rebate. After the 16.192% Tier 1 rebate, that drops to about $2,347 — saving roughly $778/year.
Try this scenario
Compare MLS cost vs hospital cover at your actual income level. The calculator shows the break-even point and your potential savings.
Compare MLS vs cover costThe cheapest way to avoid MLS
If you only want cover to avoid the surcharge, look for the cheapest qualifying hospital policy. These are often labelled "basic", "budget", or "entry-level" hospital cover. They typically cover limited hospital treatments with restrictions and exclusions — but they still qualify for the MLS exemption.
Indicative pricing: basic hospital cover (2025–26)
| Cover type | Price range | Typical cost |
|---|---|---|
| Singles | $1,000 – $1,800/yr | ~$1,400/yr |
| Couples | $2,200 – $3,400/yr | ~$2,800/yr |
| Families | $2,600 – $3,800/yr | ~$3,200/yr |
Prices are before the PHI rebate, which reduces the cost by up to 24.288% depending on your age and income tier. Premiums vary by insurer and state. Prices rose by an average of 4.41% from 1 April 2026.
When choosing the cheapest cover to avoid MLS, check that:
- The policy covers hospital treatment (not just extras)
- The excess is $750 or less (singles) or $1,500 or less (families) — some budget policies default to a higher excess
- The insurer is registered under the Private Health Insurance Act 2007
- You factor in any Lifetime Health Cover loading if you are over 30 and taking out cover for the first time
Cheapest Hospital Cover to Avoid the MLS
Compare the minimum qualifying policy requirements and indicative pricing.
Lifetime Health Cover loading: how it affects the cost
If you are over 30 and taking out hospital cover for the first time, you will pay a Lifetime Health Cover (LHC) loading on top of your premium. The loading is 2% for every year you are aged over 30 without hospital cover, up to a maximum of 70%.
Example: taking out cover at age 40
10 years without cover after turning 31 = 20% LHC loading. If the base premium is $1,400/year, the loaded premium would be $1,680/year. After 10 continuous years of cover, the loading is removed.
Even with LHC loading, holding basic cover is usually still cheaper than paying MLS once your income reaches Tier 2 ($118,001+).
Why salary sacrifice doesn't reduce your MLS
A common misconception is that salary sacrificing into super can reduce your income below the MLS threshold. In most cases, this does not work. Here's why:
When you salary sacrifice into super, your taxable income decreases — but the sacrificed amount becomes a reportable employer super contribution, which gets added back when calculating income for MLS purposes. The net effect on your MLS income is usually zero.
Example: salary sacrifice of $10,000 into super
The salary sacrifice reduces taxable income to $100,000 (below the $101,000 threshold), but income for MLS purposes is still $110,000 — Tier 1.
Salary Sacrifice Calculator
See how salary sacrifice into super affects your take-home pay, tax, and MLS liability.
Can you avoid MLS without hospital cover?
There are only two ways to legally avoid MLS without holding private hospital cover:
- Your income is below the threshold — below $101,000 (singles) or $202,000 (families) for 2025–26
- You hold a Medicare exemption — certain temporary visa holders, foreign residents, and people covered under a reciprocal health care agreement may be exempt
If your income exceeds the threshold and you do not have a Medicare exemption, MLS applies — regardless of whether you use the public health system or not.
2025–26 threshold increase: what changed
The MLS thresholds were frozen at $90,000 (singles) and $180,000 (families) from 2014–15 through 2022–23. They were first adjusted to $93,000/$186,000 for 2023–24 and 2024–25, then significantly increased to $101,000/$202,000 for 2025–26.
| Period | Singles | Families |
|---|---|---|
| 2014–15 to 2022–23 | $90,000 | $180,000 |
| 2023–24 & 2024–25 | $93,000 | $186,000 |
| 2025–26 | $101,000 | $202,000 |
If your income for MLS purposes is between $93,001 and $101,000 (singles) or $186,001 and $202,000 (families), you are no longer liable for MLS from 1 July 2025. You may wish to review whether you still need your hospital cover.
Medicare Levy vs Medicare Levy Surcharge
These are two separate charges that are often confused:
Medicare Levy (ML)
A standard 2% tax on taxable income, paid by most Australian taxpayers. It funds the public Medicare system. Holding private health insurance does not reduce or remove this levy.
Medicare Levy Surcharge (MLS)
An additional 1%–1.5% surcharge on income for MLS purposes. Only applies to higher earners without qualifying hospital cover. Holding the right cover eliminates this charge entirely.
Both the Medicare Levy and MLS are included in your tax assessment. To see how they combine with income tax, try the Australian income tax calculator for a full take-home pay breakdown.
Common mistakes that still trigger MLS
Even if you think you're covered, MLS may still apply if:
Frequently asked questions
Check your numbers for 2025–26
The steps to avoid MLS are straightforward:
- 1. Calculate your income for MLS purposes (including fringe benefits, super contributions, and investment losses)
- 2. If above $101,000 (single) or $202,000 (family), compare the MLS cost against basic hospital cover
- 3. Get qualifying hospital cover before 30 June and maintain it continuously
Related guides
MLS Thresholds 2025–26 →
Full breakdown of income tiers for singles and families, including threshold history.
Cheapest Hospital Cover for MLS →
Minimum qualifying policy requirements, indicative pricing, and what to look for.
← Back to MLS Calculator
Calculate your exact MLS liability and compare it with the cost of hospital cover.