The Medicare Levy Surcharge

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Updated 06/07/2023
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Updated to reflect new income thresholds from 1 July 2023.
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Written by

Francis Taylor

Updated 06/07/2023

What changed?

Updated to reflect new income thresholds from 1 July 2023.
Our aim is to help you make better informed decisions. That’s why iSelect’s content is produced in accordance with our fact-checking and editorial guidelines.

Find out more about how we make money.

View our Privacy Policy.

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I need cover for…

What is the Medicare Levy Surcharge?
Is it the same thing as the Medicare Levy?
How much is the Medicare Levy Surcharge?
What counts as Taxable Income?
Can I avoid paying the Medicare Levy Surcharge?
Who gets an exemption for the Medicare Levy Surcharge?
Is private health insurance worth it?
Where do I start?

Australia’s public healthcare system, Medicare, is one of the best in the developed world.2The Commonwealth Fund – Mirror, Mirror 2021: Reflecting Poorly | Health Care in the U.S. Compared to Other High-Income Countries When many Aussies visit their GP, fill a prescription, or receive specialised care, they can leave without owing a cent. The Medicare Levy Surcharge helps the government fund Medicare while also encouraging those who can afford it to take up private health insurance. In this article, we’ll cover who typically might pay the Medicare Levy Surcharge and how you could possibly avoid paying it.  

What is the Medicare Levy Surcharge?

The Medicare Levy Surcharge (MLS) is a tax you may need to pay if you don’t have an appropriate level private patient hospital cover and your annual taxable income is over $93,000 as a single or over $186,000 as a couple or family.3Australian Taxation Office – Medicare levy surcharge income, thresholds and rates  Depending on your income, the surcharge will be between 1% to 1.5%. It’s designed to incentivise higher income earners to take up private hospital cover helping to reduce the burden on the public healthcare system.4Private Health – Medicare Levy Surcharge    

The surcharge is payable for each day you don’t have appropriate private hospital cover within a financial year. That means if you don’t purchase a policy before 1st July, but buy one later in the year, you’ll pay a charge for each day you weren’t covered.5As above.  

Is it the same thing as the Medicare Levy?

The Medicare Levy and Medicare Levy Surcharge are both used by the government to fund public healthcare. The Medicare Levy is a 2% tax paid by most Australians, while the Medicare Levy Surcharge only applies to people above a certain annual income. Holding private hospital cover will not impact any Medicare Levy payable.

How much is the Medicare Levy Surcharge? 

The Medicare Levy Surcharge is calculated based on your taxable income – the more you earn, the higher percentage you’ll pay.   

As a single, you’ll pay 1% if your taxable income is above $93,000, 1.25% if you earn over $108,000, and the maximum rate of 1.5% if you earn over $144,000.   

Couples and families are taxed based on their combined taxable income. Couples will pay a 1% levy on a combined income of over $186,000, 1.25% on a combined income of over $216,000, and the maximum rate of 1.5% if they have a combined earning over $288,000.  

Still confused? We’ve outlined the three tiers in this handy table so you can see where you fit in.6Australian Taxation Office – Medicare levy surcharge income, thresholds and rates 

No ChargeTier 1Tier 2Tier 3
Singles  Less Than $93,000  $93,001-$108,000  $108,001-$144,000  $144,001+ 
Couples and Families  Less Than $186,000 (combined)  $186,001-$216,000 (combined)  $216,001-$288,000 (combined)  $288,000+ (combined) 
Medicare Levy Surcharge  0%  1%  1.25%  1.5% 

If you have two or more dependent children, the family threshold will increase by $1,500 for each dependent child after the first child.7Private Health – Medicare Levy Surcharge If you’re subject to the Medicare Levy Surcharge but want to try avoid it, then everyone in your family – including your dependents – will need adequate private health insurance coverage.

What counts as Taxable Income?

The ATO uses a specific definition of income, called Income for MLS purposes, when calculating your Medicare Surcharge Levy. Your annual MLS income will include:8Australian Taxation Office – Medicare Levy Surcharge  

  • Your taxable income, including any money that you’re paying a family trust distribution tax on. This will include your spouse’s taxable income, if you have one; 
  • Reportable fringe benefits, which are benefits you receive from your employer (other than a salary) that equal more than $2,000;9Australian Taxation Office – Reportable fringe benefits for employees 
  • Total net investment losses; 
  • Reportable super contributions. 
  • If you have a spouse, you must include their share of the net income of a trust which the trustee must pay tax and which has not been included in their taxable income. 

Helpful Tip:

If your taxable income is more than $93,000 (or $186,000 combined as a couple or family) and you don’t have private hospital cover, then you’ll have to pay extra tax thanks to the MLS. Exactly how much MLS you’ll pay if you earn over $93,000 and don’t have hospital cover depends on your exact taxable income and any reportable fringe benefits that you received but it’ll be a minimum $930 in additional tax (that is, at least 1% of your taxable income from the first dollar). Given basic hospital policies are available for just a little over $100 a year more, if you are a higher income earner then taking out private cover simply makes financial sense. And remember only the appropriate level of hospital cover – not extras – will help you avoid paying the surcharge come tax time.

Adrian Raftery

Best-selling author of 101 Ways to Save Money on Your Tax – Legally!

Can I avoid paying the Medicare Levy Surcharge?

While 1% of your income might not sound like a lot, the Medicare Levy Surcharge can really add up. Don’t believe us? Check this out:10Australian Taxation Office – Medicare levy surcharge income, thresholds and rates 

No ChargeTier 1Tier 2Tier 3
Singles Income Threshold  Less Than $93,000  $93,001-$108,000  $108,001-$144,000  $144,001+ 
Singles Minimum MLS payment  $0  $930.01  $1,350.01  $2,160.01 
Couples Income Threshold  Less Than $186,000 (combined)  $186,001-$216,000 (combined)  $216,001-$288,000 (combined)  $288,000+ (combined) 
Couples Minimum MLS payment  $0  $1,860.01  $2,700.01  $4,320.01 
Medicare Levy Surcharge  0%  1%  1.25%  1.5% 

If you’re thinking that seems like a lot of money to pay just to not have private health insurance, you’re right. The government program was literally designed to get higher-earning Aussies on private healthcare in order to ease the burden on Medicare and allow healthcare access to everyone As you start to earn more money, you can avoid paying these fees by opting into an appropriate level of private hospital cover. 

What is an appropriate level of private hospital cover?

The ATO defines an appropriate level of cover as a private hospital policy with an excess of $750 or less for singles, and $1,500 or less for couples.11Australian Taxation Office – Appropriate level of private patient hospital cover   General cover, or extras cover, isn’t considered appropriate cover.  

If a person has private health insurance that isn’t deemed an appropriate level of cover, and is earning over the income threshold, they’ll still be required to pay the Medical Levy Surcharge. 

Who gets an exemption for the Medicare Levy Surcharge?

People who are already exempt from paying the Medicare Levy and don’t have any dependents won’t usually need to pay the surcharge.12PrivateHealth.gov.au – Medicare Levy Surcharge  

How do you know if you’re eligible for an exemption on your Medicare Levy? Well, you might be if you meet any of the following conditions13Australian Tax Office – Medical exemption from Medicare levy  for all or part of the financial year: 

  • You were a blind pensioner 
  • You received sickness allowance from Centrelink (allowance ceased 20 September 2020) 
  • You were entitled to full free medical treatment for conditions under: 
  • Defence Force arrangements 
  • Veterans’ Affairs Repatriation Health Card (also known as a ‘Gold Card’) 

Exemptions may also apply in the following cases: 

Remember, for the MLS, the above exemptions only apply if you don’t have any dependents (such as children). But even if you do have dependents, it may be worthwhile to speak to the Australian Tax Office. You could still be eligible for a full or partial exemption on the Medicare Levy in certain circumstances, which may also apply to the MLS. 

Is private health insurance worth it?

There can be many benefits to having private health insurance. For example, many people feel they have more peace of mind when it comes to their health care, and they can choose which doctor treats them in hospital.  

You may also get access to additional services with private health insurance if you choose to hold an extras policy, like psychology, physiotherapy, dental and optical.   

If you get eligible hospital cover before you turn 31, you can also avoid paying the Lifetime Health Cover loading. This is a 2% loading incurred every year up to the maximum of 70% once you decide to take up hospital cover. Just like the Medicare Levy Surcharge, this can really add up.17Australian Taxation Office – Lifetime Health Cover 

Where do I start?

If you’re ready to explore private health insurance, we’re here to help. Compare a range of Australian Health Funds* using our Comparison Tool or give one of our friendly trained consults a call on 1800 784 772.

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