Medicare Levy Surcharge Threshold 2025: What You Need to Know

If you're earning a decent income in Australia, you might have heard about the Medicare Levy Surcharge (MLS) — an extra tax that applies to higher-income earners who don't have private hospital cover. Understanding the MLS thresholds for FY 2025-26 could save you hundreds or even thousands of dollars at tax time. Here's everything you need to know about the Medicare Levy Surcharge thresholds, who they affect, and how you can avoid paying this additional charge.

What Is the Medicare Levy Surcharge?

The Medicare Levy Surcharge is an additional tax imposed by the Australian government on higher-income earners who do not have an appropriate level of private hospital insurance. It's important to distinguish the MLS from the standard Medicare Levy — the 2% levy that most Australian residents pay to fund the public health system. The MLS is an extra charge on top of that 2%.

The purpose of the MLS is to encourage Australians who can afford it to take out private hospital cover. This reduces the burden on the public Medicare system and helps keep it sustainable. If you earn above certain income thresholds and don't have private hospital insurance, you'll pay the MLS when you lodge your tax return. Use our Medicare Levy Calculator to see how much you might owe.

The good news is that the MLS is entirely avoidable. If you take out an appropriate level of private hospital cover with an Australian-registered health insurer, you won't have to pay the surcharge — regardless of how much you earn.

Medicare Levy Surcharge Thresholds for FY 2025-26

The MLS applies to Australian residents whose income exceeds specific thresholds. For the 2025-26 financial year, these thresholds remain unchanged from the previous year. The surcharge is calculated based on your income for MLS purposes, which includes your taxable income, reportable fringe benefits, reportable super contributions, net investment losses, and certain other amounts.

Here's the complete breakdown of the Medicare Levy Surcharge thresholds and rates for FY 2025-26:

Source: ATO Medicare Levy Surcharge rates for FY 2025-26. Family income thresholds increase by $1,500 for each dependent child after the first.

For families, the threshold is roughly double the single threshold. Note that the family threshold increases by $1,500 for each dependent child after the first. So a family with two children would have a threshold of $203,500 rather than $202,000.

How Much Could the MLS Cost You?

The Medicare Levy Surcharge can add up to a significant amount, especially as your income grows. Let's look at some practical examples to see how much you might pay if you don't have private hospital cover:

As you can see, the MLS can easily amount to over $1,000 per year — money that could instead go toward private health insurance premiums. In many cases, taking out basic hospital cover costs less than the surcharge you'd otherwise pay. Use our Take-Home Pay Calculator to see how the MLS affects your net income.

How to Avoid the Medicare Levy Surcharge

The simplest way to avoid paying the MLS is to take out an appropriate level of private hospital cover with a registered Australian health insurer. But what counts as "appropriate"? To exempt you from the MLS, your private hospital insurance must:

• Be provided by a registered Australian health insurer
• Cover hospital treatment (extras-only cover does not exempt you)
• Have an excess of $750 or less for singles, or $1,500 or less for couples/families

If your policy meets these criteria, you can claim an exemption from the MLS on your tax return. You'll receive a private health insurance statement from your insurer each year, which you use to complete your tax return. The ATO will then know not to charge you the surcharge.

It's worth noting that you only need to be covered for part of the financial year to have the MLS reduced proportionally. If you take out cover mid-year, you'll only pay the surcharge for the days you were uninsured. However, if you're approaching the income threshold, it's generally better to get cover sooner rather than later to avoid any surprises at tax time.

Calculating Your Income for MLS Purposes

The income used to determine whether you pay the MLS is broader than just your taxable income. The ATO calculates your income for MLS purposes using several components:

• Your taxable income (after deductions)
• Reportable fringe benefits
• Total net investment losses (including net rental losses)
• Reportable superannuation contributions (including salary sacrifice)
• Any exempt foreign employment income

This is important because certain strategies that reduce your taxable income — such as salary sacrificing into superannuation — do not reduce your income for MLS purposes. The surcharge is designed this way specifically to prevent high-income earners from avoiding it through tax minimisation strategies.

If you have a HECS-HELP debt, your repayments also don't affect your MLS calculation. The income threshold for HECS repayments ($67,000 in FY 2025-26) is much lower than the MLS threshold, so you could be making student loan repayments without being subject to the MLS.

Is Private Health Insurance Worth It?

If your income is above the MLS threshold, the decision to take out private hospital cover often comes down to simple mathematics. Basic hospital cover for a single person typically costs between $1,000 and $1,500 per year, depending on the insurer and level of cover. If you're earning $120,000, the MLS would cost you $1,200 — so insurance is roughly break-even.

However, there are other factors to consider beyond just the tax implications. Private hospital cover gives you:

• Choice of doctor and hospital
• Shorter waiting times for elective surgery
• Access to private rooms (where available)
• Peace of mind for unexpected health issues

There's also the Lifetime Health Cover (LHC) loading to consider. If you don't take out private hospital cover by 1 July following your 31st birthday, you'll pay a 2% loading on top of your premiums for every year you're aged over 30 when you eventually take out cover. This loading can add up significantly over time, making it more expensive to get cover later in life.

Medicare Levy vs. Medicare Levy Surcharge: What's the Difference?

Many Australians confuse these two charges, but they're quite different. The Medicare Levy is the 2% tax that most residents pay to fund Australia's public health system. It applies to nearly everyone earning above the low-income threshold ($27,222 for FY 2025-26). You can use our Medicare Levy Calculator to work out what you'll pay.

The Medicare Levy Surcharge, on the other hand, is an additional tax that only applies to higher-income earners (above $101,000 for singles) who don't have private hospital insurance. Think of it as an incentive to encourage those who can afford it to take pressure off the public system.

Low-income earners may be exempt from or receive a reduction in the standard Medicare Levy, but the MLS only has exemptions through private health insurance — there are no income-based exemptions for the surcharge.

Summary: Key Points About the MLS Threshold 2025

• The Medicare Levy Surcharge applies to singles earning over $101,000 and families earning over $202,000 (FY 2025-26)
• MLS rates range from 1.0% to 1.5% depending on your income tier
• The only way to avoid the MLS is to have appropriate private hospital cover
• Your income for MLS purposes includes taxable income, fringe benefits, investment losses, and reportable super contributions
• Salary sacrificing and other tax minimisation strategies do not reduce your MLS liability
• Basic hospital cover often costs less than the surcharge you'd otherwise pay

Understanding the Medicare Levy Surcharge thresholds can help you make informed decisions about your health insurance and tax planning. If you're earning close to or above the threshold, it's worth comparing the cost of private hospital cover against the surcharge you'd pay without it.

For a complete picture of your tax situation — including income tax, Medicare Levy, superannuation, and HECS repayments — explore our suite of free Australian tax calculators:

• Take-Home Pay Calculator — see your net pay after all deductions
• Income Tax Calculator — calculate your exact tax bill including all brackets
• Medicare Levy Calculator — check your standard Medicare Levy and Surcharge
• Superannuation Calculator — see how your super grows over time
• HECS-HELP Calculator — estimate your student loan repayments
• Salary Sacrifice Calculator — explore ways to optimise your tax position

Remember, tax laws can change, and individual circumstances vary. If you're unsure about your specific situation, consider speaking with a registered tax agent or financial adviser who can provide personalised advice.