What is the Medicare Levy Surcharge?

The Medicare levy surcharge (MLS) is an additional tax that may apply if you earn above certain income thresholds and do not have an appropriate level of private patient hospital cover for the full financial year.

The surcharge is designed to encourage higher-income earners to take out private hospital insurance, helping reduce demand on Australia’s public health system.

The Medicare levy surcharge is separate from the standard Medicare levy, which is generally 2% of taxable income and paid by most Australian taxpayers.

How the Medicare Levy Surcharge Works

The MLS applies when both of the following are true:

• Your income for Medicare levy surcharge purposes exceeds the relevant threshold.
• You, your spouse and all your dependants did not maintain an appropriate level of private patient hospital cover for the full income year.

If these conditions are met, you may be required to pay an additional percentage of your income as tax, on top of the regular Medicare levy. This surcharge is calculated based on your income for MLS purposes, which includes items such as taxable income, reportable fringe benefits, super contributions and certain investment losses.

Income Thresholds and Surcharge Rates

Income thresholds and surcharge rates vary by income year and whether you are a single taxpayer or part of a family.

2025–26 Income Year (1 July 2025–30 June 2026)

For family thresholds, the income level increases by $1,500 for each dependent child after the first.

2024–25 Income Year (1 July 2024–30 June 2025)

These thresholds are similar but start at lower income levels:

Family thresholds again increase for dependants after the first.

We can help you work out your income for MLS purposes and check whether the surcharge applies based on your circumstances.

What Counts as Income for MLS Purposes?

Your income for MLS purposes is not just taxable income. It includes:

• Taxable income
• Reportable fringe benefits
• Net investment loss (including rental property losses)
• Reportable superannuation contributions
• If applicable, certain trust income and exempt foreign employment income

If you have a spouse, their income is included in the family income for MLS purposes.

Appropriate Level of Private Patient Hospital Cover

To avoid the Medicare levy surcharge, you and your dependants must hold an appropriate level of private patient hospital cover for the entire year.

• For singles, the cover must have an excess of $750 or less.
• For couples or families, the cover must have an excess of $1,500 or less.

Hospital cover refers to insurance that covers treatment as a private patient in an Australian hospital. Policies that only provide extras (such as dental, optical, physiotherapy, chiropractic) are not considered private patient hospital cover for MLS purposes.

If you’re unsure whether your policy counts as appropriate hospital cover, an H&R Block Tax Expert can help you review your details and understand your MLS position.

Important Considerations About Private Health Cover

• If your policy doesn’t meet the ATO’s requirements, you may still owe MLS even if you hold some form of private insurance.
• Travel insurance and overseas health cover do not count as private patient hospital cover for MLS.
• If you cancel your hospital cover during the year, you may still be liable for MLS for the days you were not covered.

Tax Tip: Health Cover Extras

Some health funds promote combined hospital and extras policies. While extras such as dental or optical may be useful for your health, they do not impact your MLS liability unless the policy includes an appropriate hospital component. Only the hospital cover portion counts for MLS purposes.

Tax Tip: Timing Matters

Taking out appropriate private hospital cover at the end of the financial year may reduce the MLS only for the period after the cover starts. To avoid the surcharge for the full year, you must hold the cover for every day of the income year. If you begin cover late in the year, you may still incur MLS for uncovered days.

If you maintain appropriate cover for the entire next income year, you will be exempt from MLS for that year.

Medicare Levy vs Medicare Levy Surcharge

The Medicare levy is a separate tax, typically 2% of taxable income, that most taxpayers pay to help fund Australia’s public health system.

The Medicare levy surcharge is an additional tax that applies only if you exceed certain income levels and do not hold adequate private hospital insurance. It is calculated and added when you lodge your tax return and appears on your notice of assessment as part of the total Medicare levy and surcharge.

Completing MLS in Your Tax Return

Your private health insurer provides a private health insurance statement that shows the number of days your policy provided appropriate hospital cover. This information is used to complete the Medicare levy surcharge section of your tax return.

If you, your spouse or dependants did not have appropriate cover for the full income year, this may result in an MLS amount being included in your tax assessment.

H&R Block Tax Experts can help you confirm whether MLS applies to you and make sure your private health insurance details are correctly included in your tax return.

Key Takeaways

• The Medicare levy surcharge aims to encourage higher-income taxpayers to take out private hospital cover.
• It applies only when your income for MLS purposes exceeds specific thresholds.
• Holding appropriate private patient hospital cover for the full year can help you avoid or minimise MLS.
• Extras-only policies do not count for MLS exemption.
• MLS is in addition to the standard Medicare levy and appears on your tax assessment.
• H&R Block Tax Experts can help you work out whether the Medicare levy surcharge applies to you and ensure your private health insurance details are correctly included when you lodge your tax return.