Medicare Levy vs Medicare Levy Surcharge
They sound almost identical, but they're completely separate charges with different rates, different rules, and different ways to reduce them.
The key difference at a glance
- Medicare Levy (ML): 2% of your taxable income — paid by most taxpayers regardless of private health insurance
- Medicare Levy Surcharge (MLS): 1%–1.5% additional charge — only applies if you earn above $101,000 (singles) or $202,000 (families) and do not hold qualifying private hospital cover
- Different income tests: the ML uses taxable income; the MLS uses a broader “income for MLS purposes” measure
- Private health insurance: only affects the MLS — it has zero impact on the standard Medicare Levy
In this guide
The quick answer
The Medicare Levy and the Medicare Levy Surcharge are two separate charges that appear as different line items on your tax return. Despite the similar names, they have different rates, different purposes, and different rules for who pays.
The Medicare Levy is a flat 2% of your taxable income, paid by almost every Australian taxpayer. It funds the public hospital and healthcare system. Having private health insurance does not reduce it.
The Medicare Levy Surcharge is an extra 1%–1.5% that only applies to higher-income earners who do not hold qualifying private hospital cover. Its purpose is to push higher earners toward private insurance so they reduce demand on the public system. You can avoid it entirely by getting a basic hospital policy.
If you earn $130,000 with no hospital cover, you pay both: $2,600 in Medicare Levy plus $1,625 in Medicare Levy Surcharge — a total of $4,225 in Medicare-related charges. Get hospital cover and the $1,625 surcharge disappears. The $2,600 levy stays.
Side-by-side comparison
This table covers every major difference. If you only read one section of this guide, make it this one.
| Medicare Levy | Medicare Levy Surcharge | |
|---|---|---|
| What it is | A tax that helps fund Australia's public healthcare system (Medicare) | An additional tax designed to encourage higher-income earners to take out private hospital cover |
| Rate | 2% — flat rate for all taxpayers above the low-income threshold | 1%, 1.25%, or 1.5% — depends on your income tier |
| Who pays | Almost all Australian tax residents earning above $27,222 (2025–26) | Only higher-income earners ($101,001+ singles / $202,001+ families) who do not hold qualifying private hospital cover |
| Income measure | Taxable income | Income for MLS purposes (taxable income + reportable fringe benefits + reportable super contributions + net investment losses) |
| Low-income phase-in | Gradual — 10 cents per dollar above $27,222 up to $34,028, then full 2% | None — crossing the threshold by $1 triggers the full rate on your entire income (cliff effect) |
| Private health insurance | No effect — you pay the levy regardless of your insurance status | Holding qualifying hospital cover exempts you entirely |
| Tax return item | Item M1 (Medicare levy reduction or exemption) | Item M2 (Medicare levy surcharge) |
Medicare Levy explained
The Medicare Levy was introduced in 1984 to help fund Australia's universal public health system. It is set at 2% of your taxable income and applies to most Australian tax residents. Unlike the MLS, it has nothing to do with private health insurance — you pay it whether you have a hospital policy or not.
The levy is calculated on your taxable income (the figure on your tax return after deductions). It does not include reportable fringe benefits, reportable super contributions, or net investment losses — those extras only matter for the surcharge.
Low-income thresholds (2025–26)
If your taxable income falls below the lower threshold, you pay no Medicare Levy at all. Between the lower and upper thresholds, you pay a reduced amount calculated at 10 cents per dollar above the lower threshold — a gradual phase-in, not a cliff.
| Category | No levy | Reduced levy | Full 2% |
|---|---|---|---|
| Singles | Below $27,222 | $27,222 – $34,028 | $34,028+ |
| Families | Below $45,907 | $45,907 – $57,384 | $57,384+ |
| Seniors & pensioners (SAPTO) | Below $43,846 | $43,846 – $54,808 | $54,808+ |
2025–26 thresholds. Family threshold increases by $1,500 for each dependent child after the first.
Who is exempt from the Medicare Levy?
A small number of people are fully exempt from the Medicare Levy. Exemptions are based on your entitlement to Medicare, not your income or insurance status:
- Foreign residents who are not entitled to Medicare benefits
- Members of the Defence Force entitled to full free medical treatment
- Veterans holding a gold card for all conditions
- Blind pensioners holding a non-income-tested health care card
- Norfolk Island residents who are not entitled to Medicare
If you were exempt for only part of the year, the levy is reduced on a daily pro-rata basis. You claim a reduction or exemption at item M1 on your tax return.
Medicare Levy Surcharge explained
The Medicare Levy Surcharge was introduced in 1997 with a specific goal: encourage higher-income Australians to take out private hospital cover and reduce pressure on the public system. It is not a replacement for the standard Medicare Levy — it is an additional charge on top of it.
You only pay the MLS if two conditions are met: your income for MLS purposes exceeds the relevant threshold, and you do not hold a qualifying private hospital policy for the full year (or the relevant part of the year).
Unlike the Medicare Levy's gradual phase-in, the MLS uses a cliff system. Earning $101,001 as a single triggers a 1% charge on your entire income — not just the $1 above the threshold. This means the surcharge can jump from $0 to $1,010 with a single dollar of additional income.
MLS tiers and rates (2025–26)
| Tier | Rate | Singles | Families |
|---|---|---|---|
Tier 0 | 0% | $0 – $101,000 | $0 – $202,000 |
Tier 1 | 1.0% | $101,001 – $118,000 | $202,001 – $236,000 |
Tier 2 | 1.25% | $118,001 – $158,000 | $236,001 – $316,000 |
Tier 3 | 1.5% | $158,001+ | $316,001+ |
2025–26 thresholds. Family threshold increases by $1,500 per dependent child after the first. These rates apply only if you do not hold qualifying hospital cover.
Why the income test is different
This is the part that catches people off guard. The Medicare Levy and the Medicare Levy Surcharge use different definitions of income.
The Medicare Levy is calculated on your taxable income — the amount reported on your tax return after deductions. If your taxable income is $95,000, your Medicare Levy is $1,900.
The Medicare Levy Surcharge uses a broader measure called income for MLS purposes. This starts with your taxable income and adds back:
- Reportable fringe benefits — the grossed-up value of salary-packaged items (car leases, meal entertainment, etc.)
- Reportable super contributions — employer contributions above the standard rate, plus any personal deductible super contributions
- Total net investment losses — if your investment expenses (negative gearing, margin loan interest) exceed investment income, the net loss is added back
Why this matters
Someone with a taxable income of $95,000 might assume they're well below the $101,000 MLS threshold. But if they also have $10,000 in reportable super contributions and $5,000 in net investment losses, their income for MLS purposes is $110,000 — putting them in Tier 1 and triggering $1,100 in MLS.
Try this scenario
Enter $95,000 taxable income with $10,000 in reportable super and $5,000 in net investment losses to see how the broader MLS income test can push you above the threshold.
Try this scenarioCan you owe both at the same time?
Yes. The Medicare Levy and the Medicare Levy Surcharge are independent charges. If you earn above the MLS threshold and don't have hospital cover, you pay both:
- 2% Medicare Levy on your taxable income (like most other taxpayers)
- Plus 1%–1.5% Medicare Levy Surcharge on your income for MLS purposes
That means higher-income earners without hospital cover can pay up to 3.5% of their income in combined Medicare-related charges (2% levy + 1.5% surcharge at the top tier).
Here's a quick summary of the four possible scenarios:
Income below MLS threshold — you pay the 2% Medicare Levy but no surcharge. Private health insurance is irrelevant at this income level.
Income above MLS threshold, no hospital cover — you pay the 2% Medicare Levy plus 1%–1.5% MLS. This is the most expensive scenario.
Income above MLS threshold, with hospital cover — the 2% Medicare Levy still applies, but the surcharge is eliminated. This is what most higher earners aim for.
Income below ML threshold or exempt — you pay neither charge. This applies to very low incomes (under $27,222) or exempt categories like foreign residents.
Worked examples
Three real-world scenarios showing how the two charges interact at different income levels.
Example 1: $85,000 salary, no hospital cover
Lisa earns $85,000 in taxable income. She has no reportable fringe benefits, extra super contributions, or investment losses. She does not have private hospital cover.
Medicare Levy: 2% × $85,000 = $1,700/year
Medicare Levy Surcharge: $0 — income is below the $101,000 singles threshold
Total Medicare charges: $1,700/year
At this income, Lisa does not need private hospital cover to avoid the MLS. She pays the standard Medicare Levy like most taxpayers.
Example 2: $130,000 salary, no hospital cover
Marcus earns $130,000. His income for MLS purposes is also $130,000 (no extra components). He does not have hospital cover.
Medicare Levy: 2% × $130,000 = $2,600/year
Medicare Levy Surcharge: 1.25% × $130,000 = $1,625/year (Tier 2)
Total Medicare charges: $4,225/year
If Marcus gets basic hospital cover (~$1,100/year after the PHI rebate at this income), he eliminates the $1,625 MLS and saves roughly $525/year — while also getting actual hospital insurance.
What this means in dollars
Single earning $130,000 without hospital cover
$4,225/year in combined Medicare charges
$2,600 in Medicare Levy (unavoidable) + $1,625 in Medicare Levy Surcharge (avoidable with hospital cover costing ~$1,100/year). Net saving by getting cover: ~$525/year.
Example 3: $200,000 salary, with hospital cover
Priya earns $200,000 and holds a qualifying private hospital policy all year. Her policy costs $1,400/year (no PHI rebate at Tier 3).
Medicare Levy: 2% × $200,000 = $4,000/year
Medicare Levy Surcharge: $0 — exempt because she holds qualifying hospital cover
Total Medicare charges: $4,000/year + $1,400 insurance = $5,400/year
Without cover, Priya would pay $4,000 (levy) + $3,000 (1.5% surcharge) = $7,000/year. By paying $1,400 for insurance, she saves $1,600/year and gets hospital cover in return.
Try this scenario
Enter your income to see your Medicare Levy and MLS side by side, and check whether hospital cover saves you money.
Calculate your MLSHow to check what you owe
Both charges are calculated when you lodge your tax return. You don't pay them separately during the year — they're assessed as part of your overall tax liability.
For the Medicare Levy: if you're an Australian resident for tax purposes and earning above the low-income threshold, you'll pay it automatically. If you qualify for a reduction or exemption, you claim it at item M1. Your employer already withholds an estimate of the levy from your pay during the year.
For the MLS: if your income for MLS purposes exceeds the threshold and you don't have hospital cover, the ATO adds the surcharge at item M2. Your insurer reports your cover status directly to the ATO, so you don't need to prove you have cover — but you do need to check that your policy qualifies (hospital cover with an excess of no more than $750 for singles / $1,500 for families).
Checklist: do you owe the MLS?
- 1Calculate your income for MLS purposes (taxable income + RFB + RSC + NIL)
- 2Check if it exceeds $101,000 (single) or $202,000 (family)
- 3If yes — do you hold qualifying private hospital cover for the full year?
- 4If no — you owe MLS at the tier rate on your entire income for MLS purposes
MLS Calculator
Enter your income, family status, and insurance details to see your exact MLS liability and whether hospital cover saves you money.
Related guides
MLS Thresholds 2025–26
Full breakdown of every MLS tier for singles, couples, and families — with worked examples at $110K, $130K, and $200K.
How to Avoid the Medicare Levy Surcharge
Practical strategies including the cheapest qualifying hospital cover, timing tips, and common mistakes.
Cheapest Hospital Cover to Avoid the MLS
Find the minimum qualifying policy, what it costs after the PHI rebate, and whether it's cheaper than the surcharge.