Medicare Levy and Surcharge Explained (2025–26)
Published by SWIFT ACCOUNTANTS PTY LTD · Last reviewed
Most Australian taxpayers pay a Medicare Levy on top of their income tax. Higher earners without private hospital insurance also pay a Medicare Levy Surcharge. This guide explains both levies, who pays them, and how to reduce your liability.
What Is the Medicare Levy?
The Medicare Levy is a tax contribution that helps fund Australia's public health system, Medicare. It is charged at 2% of your taxable income and is paid in addition to your regular income tax.
The Medicare Levy is collected through the same PAYG withholding system as income tax — your employer automatically withholds an estimated amount each pay period, and any adjustment is made when you lodge your annual tax return.
For a person earning $80,000 per year, the Medicare Levy is $1,600 annually ($80,000 × 2%). This is separate from income tax — it is an additional charge on top of the brackets-based tax.
Low-Income Exemptions
Not everyone pays the full Medicare Levy. Low-income earners are either exempt entirely or pay a reduced amount that phases in as income rises.
For 2025–26, the key thresholds are:
- Below $27,222 (singles): No Medicare Levy is payable
- $27,222 – $34,028 (singles): A reduced levy applies — the levy phases in at a rate of 10 cents per dollar above the threshold
- Above $34,028 (singles): The full 2% levy applies
Different thresholds apply to families (depending on number of dependent children) and to individuals entitled to certain tax offsets. The ATO publishes updated thresholds each year.
What Is the Medicare Levy Surcharge?
The Medicare Levy Surcharge (MLS) is a separate additional charge on top of the standard Medicare Levy. It was introduced to encourage higher-income Australians to take out private hospital insurance, reducing pressure on the public health system.
The MLS applies if you:
- Are an Australian resident for tax purposes
- Earn above the MLS income threshold (currently $93,000 for singles)
- Do not have an appropriate level of private hospital insurance
The MLS rate ranges from 1% to 1.5% depending on your income tier, as shown in the table below.
Medicare Levy Surcharge Rates 2025–26
| Income | MLS Rate |
|---|---|
| Up to $93,000 (singles) / $186,000 (families) | 0% |
| $93,001 – $108,000 (singles) | 1.0% |
| $108,001 – $144,000 (singles) | 1.25% |
| $144,001+ (singles) | 1.5% |
Family income thresholds are double the singles thresholds ($186,000 / $216,000 / $288,000+). The MLS is assessed on your income for surcharge purposes, which includes reportable fringe benefits.
Example: MLS on a $110,000 Salary
A single person earning $110,000 without private hospital insurance would pay:
By taking out an appropriate private hospital policy — which may cost $1,200–$2,000 per year for a basic tier — this person would save $1,375 in MLS while gaining access to private hospital coverage.
How to Avoid the Medicare Levy Surcharge
The only way to avoid the MLS (if you earn above the threshold) is to hold an appropriate level of private hospital insurance. The cover must be through a registered health insurer and must include hospital cover — extras cover (dental, optical, physiotherapy) alone is not sufficient to avoid the MLS.
An "appropriate level" means the policy must have a hospital excess no greater than $750 for singles ($1,500 for families). Basic hospital policies that meet this requirement can be found from around $900–$1,500 per year for a healthy young adult.
When comparing options, calculate your MLS liability versus the annual cost of the cheapest compliant hospital policy. For most earners in Tier 1 ($93,000–$108,000), the numbers are close — the key is to compare actual quotes from health funds.