Health · Australia

How to Avoid the Medicare Levy Surcharge (2025–26)

The Medicare Levy Surcharge (MLS) is an extra tax of 1% to 1.5% on higher earners who don't hold private hospital cover. The good news: it's entirely avoidable, and for many people the cover that avoids it costs less than the surcharge itself. Here's exactly how to avoid it, who has to, and when it's worth doing.

The one rule: hold appropriate hospital cover

You avoid the MLS by holding an appropriate level of private patient hospital cover with a registered Australian health fund, for the whole income year. Key details that trip people up:

• It must be hospital cover. Extras-only cover (dental, optical, physio) does not exempt you.
• "Appropriate" means the policy's excess is no more than $750 for singles or $1,500 for couples/families. A basic policy with a $750 excess is enough.
• You must hold it for the full year. If you take it out partway through, you may still owe the surcharge for the uncovered days.
• Every adult on the policy must be covered — for a couple, both partners need hospital cover.

Who actually has to worry about it

The MLS only applies above the income thresholds. For 2025–26 (income for surcharge purposes — broadly taxable income plus reportable fringe benefits and super):

Tier	Single income	Family income	Surcharge
Base	≤ $97,000	≤ $194,000	0%
Tier 1	$97,001 – $113,000	$194,001 – $226,000	1.0%
Tier 2	$113,001 – $151,000	$226,001 – $302,000	1.25%
Tier 3	> $151,000	> $302,000	1.5%

Family thresholds rise by $1,500 for each dependent child after the first. Below the base threshold there is no surcharge, so cover is a lifestyle choice, not a tax one. The MLS is separate from — and on top of — the standard 2% Medicare levy almost everyone pays.

Is cover actually cheaper than the surcharge?

This is the real question. Work out two numbers:

• Your surcharge: your income × your tier rate. On $130,000 (Tier 2, single) that's 1.25% = $1,625/year.
• A basic hospital policy after the rebate: often around $1,100–$1,500/year for a single, depending on state and age.

In that example, taking cover both removes the $1,625 surcharge and gives you actual hospital cover — usually the better deal above the Tier 1 threshold. Below Tier 1, the surcharge is zero, so cover only makes sense if you want it for health reasons.

Exemptions and edge cases

• If your income is below the threshold, you're exempt — no cover needed for tax purposes.
• Some people are exempt from the Medicare levy itself (e.g. certain foreign residents and visa holders); the MLS follows the same exemption rules.
• The surcharge is calculated on a daily basis — you only pay it for the days you were both over the threshold and uninsured.

Frequently asked questions

How do I avoid the MLS?
Hold appropriate private hospital cover (excess ≤ $750 single / $1,500 family) for the whole year. Extras-only doesn't count.

What income triggers it in 2025–26?
Above $97,000 single / $194,000 family; 1% / 1.25% / 1.5% across the three tiers.

Is cover cheaper than the surcharge?
Often, once you're above the Tier 1 threshold — and you get actual cover too.

Related

• Medicare Levy Surcharge: full guide
• Private health insurance rebate tiers
• Rebate & surcharge calculator

Sources

• ATO — Medicare Levy Surcharge income thresholds and rates (2025–26)
• privatehealth.gov.au — Medicare Levy Surcharge; appropriate hospital cover
• ATO — Lifetime Health Cover loading

Figures as of June 2026 (2025–26 thresholds). Premiums vary by insurer, state and age. Verify current figures on ato.gov.au and privatehealth.gov.au. General information, not financial or health advice (ASIC RG 244).