Medicare Levy and Medicare Levy Surcharge Explained 2026

Two separate charges appear on almost every Australian tax return: the Medicare levy and, for some, the Medicare Levy Surcharge. Despite similar names, these are fundamentally different — one is a near-universal contribution to the public health system, the other is a penalty designed to encourage higher earners to take out private health insurance. Understanding both can save you thousands of dollars a year.

The Medicare Levy: 2% on Taxable Income

The Medicare levy is a flat 2% of your taxable income. It was introduced in 1984 and partially funds Medicare, Australia’s universal public health system. Unlike income tax, the levy is not progressive — it’s the same percentage whether you earn $30,000 or $300,000.

For the 2026-27 financial year, the Medicare levy rate remains at 2%. It is calculated on your taxable income (your assessable income minus allowable deductions) and appears as a separate line item on your notice of assessment after you lodge your tax return.

For example, if your taxable income is $85,000, your Medicare levy is $85,000 × 2% = $1,700. This is added to your income tax liability. There is no cap or maximum amount.

Low-Income Thresholds: Who Gets a Reduction or Exemption

Not everyone pays the full 2%. The ATO provides relief for low-income earners through a system of thresholds and phase-out ranges. The 2026-27 thresholds are:

Singles (no dependants):

• Full exemption if taxable income is $26,000 or less
• Reduced levy on a sliding scale for incomes between $26,001 and $32,500
• Full 2% levy for incomes above $32,500

Families (couples and single parents):

• Full exemption if combined family taxable income is $43,846 or less (plus $4,027 for each dependent child after the first)
• Reduced levy on a sliding scale above the threshold
• Full 2% levy once income exceeds the phase-out limit

Seniors and pensioners:

• Higher thresholds apply for those eligible for the seniors and pensioners tax offset (SAPTO)
• Single seniors: full exemption up to $35,851 (2026-27 estimate)
• Senior couples: full exemption up to $49,889 (combined, 2026-27 estimate)

The phase-out calculation means that if you’re just over the threshold, you may pay only a fraction of the 2%. For example, a single person earning $28,000 might pay a reduced levy of around $200 instead of the full $560.

Source: ATO Medicare levy reduction and exemption thresholds, July 2026.

Exemption Categories

Some taxpayers are fully exempt from the Medicare levy regardless of income. The main exemption categories include:

Not entitled to Medicare benefits. This is the most common exemption. If you’re a temporary resident who is not eligible for Medicare (and not from a Reciprocal Health Care Agreement country), you can apply for a Medicare Entitlement Statement from Services Australia. With this statement, you claim a full exemption on your tax return for the period you were not entitled to Medicare. International students, temporary work visa holders, and visitors often fall into this category.

Medical exemption. If you have specific medical conditions that qualify, you can apply for a Medicare levy exemption certificate. This is rare and requires approval from Services Australia.

Foreign residents for tax purposes. Foreign residents do not pay the Medicare levy as part of their tax liability, which is one reason non-resident tax rates differ from resident rates.

Members of the defence force. Certain ADF personnel with specific medical entitlements may be exempt.

If you change residency status during the year (for example, you arrive in Australia and become a resident mid-year), the levy is calculated on a pro-rata basis for the number of days you were a resident.

The Medicare Levy Surcharge: A Penalty for Not Having Private Cover

The Medicare Levy Surcharge (MLS) is an additional charge imposed on higher-income earners who do not hold an appropriate level of private patient hospital cover. It was introduced in 1997 as part of the policy to encourage people to take out private health insurance, thereby reducing pressure on the public hospital system.

The MLS is separate from the Medicare levy and is tiered based on income. For the 2026-27 financial year, the tiers are:

MLS Tiers — Singles (2026-27)

Base threshold — Income $101,000 or less: no surcharge Tier 1 — Income $101,001 to $118,000: MLS rate = 1.0% of taxable income Tier 2 — Income $118,001 to $158,000: MLS rate = 1.25% of taxable income Tier 3 — Income $158,001 and above: MLS rate = 1.5% of taxable income

MLS Tiers — Couples and Families (2026-27)

For couples and families the thresholds are set at double the single figures, so the base family threshold is $202,000 of combined income. Applying that doubling to each single tier gives the 2026-27 family bands:

Base threshold — Combined income $202,000 or less: no surcharge Tier 1 — Combined income $202,001 to $236,000: MLS rate = 1.0% Tier 2 — Combined income $236,001 to $316,000: MLS rate = 1.25% Tier 3 — Combined income $316,001 and above: MLS rate = 1.5%

Note: the family threshold increases by a further $1,500 for each dependent child after the first, so a family with three children has a higher entry point than a couple with none.

Source: ATO Medicare Levy Surcharge thresholds, 2026-27 financial year.

What the MLS Costs You: Real Examples

The MLS can be substantial. Consider these real-world scenarios:

Single professional earning $120,000: In Tier 2 ($118,001–$158,000), MLS rate = 1.25%. Annual surcharge = $120,000 × 1.25% = $1,500. This is on top of the standard Medicare levy ($2,400). Total health-related tax: $3,900.

Single executive earning $180,000: In Tier 3 ($158,001 and above), MLS rate = 1.5%. Annual surcharge = $180,000 × 1.5% = $2,700. Plus Medicare levy of $3,600. Total: $6,300.

Couple earning $250,000 combined: In the family Tier 2 band ($236,001–$316,000), MLS rate = 1.25%. Annual surcharge = $250,000 × 1.25% = $3,125. Plus Medicare levy of $5,000. Total: $8,125.

In many cases, the cost of a basic private hospital policy is less than the MLS you’d pay without one. This is by design — the policy is meant to make private cover the financially rational choice. Basic hospital cover can often be found for $1,200–$1,800 per year for a single person, while the MLS on a $120,000 income is $1,500.

Income for MLS Purposes

The MLS uses a broader definition of income than just taxable income. Your “income for MLS purposes” includes three components:

1. Taxable income — your assessable income minus allowable deductions
2. Reportable fringe benefits amounts (RFBA) — the grossed-up value of fringe benefits shown on your payment summary
3. Total net investment losses — the sum of your net financial investment losses and net rental property losses

This broader definition means that someone with $118,000 of taxable income but $8,000 of reportable fringe benefits has an MLS income of $126,000, potentially pushing them into a higher MLS tier.

Importantly, salary sacrificed super contributions are excluded from taxable income and are therefore not included in MLS income (unless they exceed the concessional cap and become reportable). This means salary sacrificing can effectively lower your MLS income, potentially bringing you below a tier threshold.

How to Avoid the MLS

The only way to avoid the MLS is to hold an appropriate level of private patient hospital cover with a registered health insurer. “Appropriate” means:

• The policy must cover hospital treatment (extras-only cover does not qualify)
• The excess must be $750 or less for singles ($1,500 for couples/families)
• The policy must be held for the full period you want to avoid the surcharge

If you take out hospital cover partway through the financial year, you pay the MLS only for the days you were not covered. For example, if you take out cover on 1 January 2027, you pay the MLS for 184 days (the first half of the year) and avoid it for 181 days.

You do not need to hold extras cover (dental, optical, physio) to avoid the MLS — hospital cover alone is sufficient.

Lifetime Health Cover Loading

A related policy worth noting is the Lifetime Health Cover (LHC) loading. If you don’t take out private hospital cover by 1 July following your 31st birthday and later decide to get cover, you pay a 2% loading on your premium for every year you were over 30 without cover, up to a maximum of 70%. For example, taking out cover at age 40 means a 20% loading on premiums. The LHC loading is separate from the MLS but interacts with it — both are designed to encourage early and continuous private health cover.

How the Medicare Levy and MLS Appear on Your Tax Return

Both the Medicare levy and the MLS are calculated as part of your income tax assessment. They appear on your notice of assessment:

• Medicare levy — shown as a separate line item
• Medicare Levy Surcharge — shown as a separate line item if applicable

If your employer withholds tax from your salary, the withholding tables do not include the MLS. This means if you’re liable for the MLS, you’ll typically have a tax bill at the end of the financial year rather than a refund, because insufficient tax was withheld during the year.

Private Health Insurance Rebate

On the flip side, if you do hold private health insurance and your income is below certain thresholds, you may be entitled to the private health insurance rebate. This rebate reduces your premium cost and is income-tested:

• Income $101,000 or less (singles) / $202,000 or less (families): base tier rebate (highest, approximately 24.6% for under-65s)
• Income $101,001–$118,000 (singles): tier 1 rebate
• Income $118,001–$158,000 (singles): tier 2 rebate
• Income above $158,000 (singles): no rebate

The rebate can be claimed as a reduction in your premiums (through your insurer) or as a tax offset when you lodge your tax return.

Use the Income Tax Calculator to see how the Medicare levy and surcharge affect your total tax position. Visit /calculators/income-tax/ and enter your income details to get a full breakdown.

Frequently Asked Questions

What is the Medicare levy and who has to pay it?

The Medicare levy is a 2% tax on your taxable income that helps fund Australia’s public health system (Medicare). Most Australian resident taxpayers pay it. For 2026-27, the levy is 2% of taxable income. Low-income earners may get a reduction or full exemption — singles earning $26,000 or less and families earning $43,846 or less can be fully exempt. Non-residents and certain categories of visa holders are not entitled to Medicare benefits and may be exempt from the levy.

How can I avoid paying the Medicare Levy Surcharge?

To avoid the Medicare Levy Surcharge (MLS), you need to hold an appropriate level of private hospital cover with a registered health insurer. You must maintain this cover for the entire financial year — if you drop it mid-year, the surcharge applies for the days you were not covered. The MLS is calculated on a pro-rata basis: if you take out hospital cover partway through the year, you only pay the surcharge for the days you weren’t covered. ‘Appropriate’ means a policy with an excess of $750 or less for singles ($1,500 for couples/families).

Do temporary residents have to pay the Medicare levy?

Temporary residents who are not eligible for Medicare (most international students, temporary work visa holders, and visitors) can apply for a Medicare Entitlement Statement from Services Australia to claim an exemption from the Medicare levy. If you hold a visa from a country with which Australia has a Reciprocal Health Care Agreement (RHCA) — including the UK, Ireland, New Zealand, and several European countries — you may be eligible for Medicare and therefore need to pay the levy.

What income counts for the Medicare Levy Surcharge thresholds?

The MLS uses ‘income for MLS purposes’, which includes your taxable income, reportable fringe benefits amounts (RFBA), and total net investment losses. If you salary sacrifice into super, that amount is already excluded from taxable income and therefore not counted for MLS purposes. However, reportable super contributions (such as those above the compulsory SG rate) are added back. The MLS tiers apply to singles based on their own income and to families based on combined income.

Disclaimer: This article provides general estimates only and does not constitute financial, tax, or legal advice. Rates, thresholds, and rules change. Always refer to the ATO, your state revenue office, or a licensed professional for your specific circumstances. Last updated: July 2026.