Medicare Levy vs Medicare Levy Surcharge: What's the Difference?
Many Australians confuse the Medicare levy with the Medicare Levy Surcharge — they sound similar but are two entirely separate charges with different rules, different thresholds, and different ways of avoiding them. Understanding the distinction can help you make an informed decision about whether private health insurance is worth the cost.
The Medicare levy: 2% for almost everyone
The Medicare levy is a 2% tax on your taxable income that helps fund Australia's universal public health system, Medicare. If you earn taxable income in Australia, you almost certainly pay this levy — it applies regardless of whether you hold private health insurance.
Low-income exemptions (2025–26):
- Singles: No levy applies on income below $26,000; a partial levy applies up to $32,500
- Families: No levy applies if family income is below $43,846 (plus $4,027 for each dependent child); partial levy up to $54,808
- Seniors and pensioners have higher exemption thresholds
For most working Australians, the Medicare levy is simply 2% of taxable income. On a $90,000 income, that is $1,800 per year. It appears as a line item on your tax assessment and is typically withheld by your employer during the year.
The Medicare levy is not the same as the Medicare Levy Surcharge. The levy is automatic and universal; the surcharge is conditional and avoidable.
The Medicare Levy Surcharge: extra tax for high earners without private hospital cover
The Medicare Levy Surcharge (MLS) is an additional charge imposed on Australian residents who:
- Earn above the MLS income threshold, AND
- Do not hold adequate private hospital insurance cover
The intent is to encourage higher-income earners to take out private health insurance, reducing pressure on the public hospital system.
MLS income thresholds and rates (2025–26):
| Income tier | Single | Family | Surcharge rate |
|---|---|---|---|
| Tier 0 (no MLS) | Below $93,000 | Below $186,000 | 0% |
| Tier 1 | $93,001–$108,000 | $186,001–$216,000 | 1.0% |
| Tier 2 | $108,001–$144,000 | $216,001–$288,000 | 1.25% |
| Tier 3 | Over $144,000 | Over $288,000 | 1.5% |
For families, the threshold increases by $1,500 for each dependent child after the first.
The surcharge applies to your entire income once you cross the threshold — not just the income above the threshold. So moving from $92,999 to $93,001 can trigger an MLS of $930 on the full amount.
How to avoid the Medicare Levy Surcharge
The surcharge is entirely avoidable: take out a private hospital insurance policy that meets the government's minimum standards. To be exempt from the MLS, your policy must be:
- From an Australian-registered private health insurer
- A hospital cover policy (extras/ancillary cover alone does not count)
- At minimum, Basic tier (not "junk" policies) as defined under the Gold/Silver/Bronze/Basic classification system
You do not need to use the insurance — you simply need to hold it.
What does adequate hospital cover cost? For a single person in 2025–26, a basic hospital policy typically costs $1,200–$1,800 per year. After accounting for the government's private health insurance rebate (see below), the effective cost is lower.
The break-even point: For someone earning $95,000 (Tier 1), the MLS would be $950/year. A basic hospital policy at $1,400/year before rebate, and approximately $1,060/year after a 24.608% rebate, is slightly more than the surcharge. However, the policy also provides actual health insurance coverage — access to a private hospital room, avoiding elective surgery waiting lists — so many people find the value outweighs the marginal cost difference.
For someone at $120,000 (Tier 2), the MLS is $1,500/year, making private cover essentially cost-neutral or cheaper than paying the surcharge.
The private health insurance rebate
The federal government subsidises private health insurance premiums through the Private Health Insurance Rebate. The rebate is income-tested and age-based, and reduces the effective premium you pay.
Rebate rates (2025–26, for under age 65):
- Income up to $93,000: 24.608%
- $93,001–$108,000: 16.405%
- $108,001–$144,000: 8.202%
- Over $144,000: 0%
You can take the rebate as a premium reduction (most common), a lump sum through your tax return, or as a tax offset.
Note: If your income is over $144,000, you receive no government rebate. At this income level, the MLS is 1.5% and the full cost of private hospital cover is at your expense.
Summary: Medicare levy vs Medicare Levy Surcharge
| Medicare Levy | Medicare Levy Surcharge | |
|---|---|---|
| Rate | 2% of taxable income | 1%–1.5% of income |
| Who pays | Almost everyone | High earners without private hospital cover |
| Income threshold | ~$26,000 (single) | $93,000+ (single) |
| How to avoid | Low-income exemption only | Take out private hospital cover |
| Purpose | Fund Medicare | Encourage private insurance uptake |
Calculate your Medicare Levy Surcharge
Use our calculator to determine whether the MLS applies to you and whether private health insurance would cost less than the surcharge.