How to Avoid the Medicare Levy Surcharge (2025–26 Guide)
The Medicare Levy Surcharge (MLS) is an additional tax of 1% to 1.5% that applies if your income exceeds the MLS thresholds and you don't hold qualifying private hospital cover.
This guide explains when MLS applies, what hospital cover qualifies, the cheapest avoidance strategy, and common mistakes that still trigger the surcharge.
Updated: July 2025 · Based on ATO legislation
Step 1: Check if your income exceeds the MLS threshold
MLS applies based on income for MLS purposes — not just taxable income. This broader measure may include reportable fringe benefits, reportable employer super contributions, and total net investment losses such as negative gearing.
For 2025–26, MLS applies when income exceeds:
- Singles: $93,001
- Families: $186,001 (plus $1,500 per dependent child after the first)
If your income is below the threshold, you do not need hospital cover to avoid MLS.
Calculate your exact MLS income →Step 2: Get qualifying private hospital cover
To avoid MLS, you must hold eligible private hospital cover. Not all policies qualify — your policy must:
- Cover hospital treatment — extras-only and ambulance-only policies do not count
- Be issued by a registered Australian private health insurer
- Have an excess of $750 or less for singles, or $1,500 or less for families
If your policy has a higher excess, it may not qualify for the MLS exemption even if it covers hospital treatment.
Step 3: Maintain cover for the full financial year
To avoid MLS entirely, you must hold qualifying cover for the entire financial year (1 July – 30 June). MLS is calculated on a daily basis, so any gap triggers a pro-rated charge.
For example: if you were uninsured for 3 months of the year, you may pay approximately 25% of your annual MLS liability for that period.
Taking out cover before 30 June will reduce — but not eliminate — MLS if you were uncovered for part of the year.
Step 4: Cover all relevant family members
For couples and families, the MLS exemption requires that all family members are covered:
- Your spouse or de facto partner must be covered
- All dependent children must be included on the policy
If one person in the family is not covered, MLS may still apply to the family unit.
Step 5: Report it correctly on your tax return
Your insurer provides a Private Health Insurance Statement each year. When you lodge your tax return, include the statement details and the ATO will automatically apply the MLS exemption based on your period of cover.
Can you avoid MLS without insurance?
In most cases, no. You can only avoid MLS without hospital cover if your income is below the relevant threshold, or if you qualify for a Medicare exemption (for example, certain visa holders). Extras-only and ambulance-only policies do not count.
If your income exceeds the threshold and you don't hold qualifying hospital cover for the full year, MLS generally applies — regardless of whether you use the public health system.
Is it worth getting hospital cover just to avoid MLS?
For many higher-income earners, yes. MLS can cost 1%–1.5% of your full MLS income per year. Basic hospital cover — especially after applying the private health insurance rebate — may cost less than the surcharge. You also gain hospital coverage as a side benefit.
Example — single, $120,000 MLS income:
- MLS at 1.25% = $1,500 per year
- Basic hospital cover after rebate may cost less than $1,500
In this case, holding qualifying cover is financially smarter than paying the surcharge.
Use the calculator to compare your MLS vs cover cost →The cheapest way to avoid MLS
Many Australians choose the minimum qualifying hospital policy — sometimes called "basic" or "entry-level" cover — purely to avoid the surcharge. These policies meet MLS exemption requirements while offering limited hospital benefits, keeping premiums low.
Important considerations:
- Waiting periods may apply for new policyholders
- Excess must stay within ATO thresholds ($750 singles / $1,500 families)
- Cover must be continuous — any gap triggers pro-rated MLS
Common mistakes that still trigger MLS
Even if you think you're covered, MLS may still apply if:
Medicare Levy vs Medicare Levy Surcharge
These are two separate charges and are often confused:
Medicare Levy
Standard 2% tax 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
An additional 1%–1.5% that applies only to higher-income earners without qualifying hospital cover. Holding the right cover eliminates this charge entirely.
Both the Medicare Levy and MLS are included in your total tax liability. To see how they combine with income tax and HECS repayments, try the Australian income tax calculator for a full breakdown.
Frequently asked questions
Check your numbers
Avoiding MLS is straightforward in principle:
- 1. Confirm your MLS income (including fringe benefits and super)
- 2. Compare MLS payable against the cost of qualifying hospital cover
- 3. Get qualifying cover before 30 June and maintain it continuously