What’s the Difference Between the Medicare Levy and the Medicare Levy Surcharge?
Many taxpayers are surprised to see both a Medicare levy and a Medicare levy surcharge on their notice of assessment. Although they sound similar, they serve different purposes. Here’s what each one means.
Medicare Levy
The Medicare levy is a compulsory charge that helps fund Australia’s public healthcare system. Most Australians pay this levy, which is set at 2% of your taxable income. Employers generally withhold the levy from your pay throughout the year, so you may only notice it when your tax return is processed.
It’s important to understand that having private health insurance does not exempt you from paying the Medicare levy. Private cover only affects whether you need to pay the additional Medicare levy surcharge.
Some people may qualify for a reduced levy or full exemption. These include low-income earners, foreign residents, and individuals with approved medical exemptions.
Medicare Levy Surcharge (MLS)
The Medicare levy surcharge is an additional charge aimed at encouraging higher-income earners to take out private hospital insurance. By doing so, the government aims to reduce pressure on the public healthcare system.
The MLS is not withheld from your pay during the year. Instead, it is calculated when you lodge your tax return.
You may need to pay the MLS if:
- Your income exceeds the MLS threshold, and
- You, your spouse and your dependent children do not all have an appropriate level of private hospital cover for the entire income year.
Surcharge rates vary depending on your income tier. For the 2025–2026 year, the MLS starts at 1% for:
- Singles with income over $101,000, and
- Families with income over $202,000.
Your income for MLS purposes includes more than just taxable income. It also takes into account reportable fringe benefits, net investment losses, and reportable super contributions. If you have a spouse, their income is included in the calculation as well.
Private Health Insurance Requirements
To avoid the MLS when your income is above the threshold, you must hold an appropriate level of private patient hospital cover.
The policy must have:
- An excess of $750 or less for singles, or
- An excess of $1,500 or less for couples or families.
Importantly, the policy must cover you, your spouse and all dependants for the full income year to avoid the surcharge.
Keep in mind that extras-only cover such as dental, optical, or physio and travel insurance do not qualify as private hospital cover for MLS purposes.
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