Recent Australian Taxation Office (ATO) date, discloses that 768,537 people paid the Medicare Levy Surcharge (MLS) in the 2023 Financial Year. The ATO also confirms that there is an increase of nearly 25% on the previous year.
The Medicare Levy Surcharge is an additional 1.0% to 1.5% paid by Australian taxpayers who do not have private hospital cover and are considered by the Australian Government to be “high income earners”
It is designed to encourage higher-income earners to take out private health insurance, reducing demand on the public system.
The MLS is separate from the standard Medicare Levy of 2% of taxable income that most taxpayers already pay.
Income Thresholds for MLS (2025–26)
Filing Status Income Range (AUD) MLS Rate
Single ≤ $101,000 0%
$101,001 – $118,000 1%
$118,001 – $158,000 1.25%
≥ $158,001 1.5%
Family /Couple ≤ $202,000 0%
$202,001 – $236,000 1%
$236,001 – $316,000 1.25%
≥ $316,001 1.5%
Family income thresholds are increased by $1,500 for each dependent child after the first.
How “Income for MLS Purposes” is Calculated
It is not just your taxable income. It includes:
- Taxable income
- Reportable fringe benefits
- Total net investment losses
- Reportable super contributions
- Any exempt foreign employment income
Examples
Example 1 – Single without Private Cover
John earns a taxable income of $120,000 with no reportable super or fringe benefits.
He has no private hospital insurance.
His income for MLS purposes = $120,000 → falls in Tier 2 (1.25%).
MLS payable = $120,000 × 1.25% = $1,500.
Example 2 – Family with Two Children, No Private Cover
Sarah and Michael have a combined income of $250,000.
They have 2 children.
Threshold for families = $194,000 + $1,500 (extra child) = $195,500.
Their income of $250,000 exceeds the threshold → falls in Tier 2 (1.25%).
MLS payable = $250,000 × 1.25% = $3,125.
Example 3 – Family with Cover
If Sarah and Michael (above) take out eligible private hospital insurance, they avoid the MLS entirely.
Their MLS payable = $0, even though their income is above the threshold.
Strategies to Reduce or Avoid the MLS
- Take out private hospital insurance.
The simplest and most common way to avoid MLS.
Even a basic compliant policy is enough (extras cover does not count).
- Manage reportable fringe benefits and salary packaging.
Review how salary packaging (e.g., cars, laptops) affects your income for MLS.
- Offset investment losses.
Strategic management of capital gains/losses may lower your net investment income.
- Family income splitting (where applicable)
Some planning with deductible super contributions or investment ownership may reduce assessable family income.
Key Takeaways
The MLS only applies to taxpayers above the income thresholds who don’t have private hospital insurance.
It ranges from 1% to 1.5% of income and can add up significantly.
Holding even a basic level of private hospital cover can be cheaper than paying the MLS.
Tax planning strategies (income management and structuring) can also help reduce or avoid the surcharge.
Should you require further information in relation to Medicare Levy Surcharge, please feel free to contact Peter Quinn by submitting an enquiry or calling us on +61 2 9580 9166 to book an obligation-free appointment.
The information in this document does not take into account your personal objectives, financial situation, or needs, so you should consider its appropriateness having regard to these factors before acting on it. It is important that your personal circumstances are taken into account before making any financial decision and it is recommended that you seek assistance from your financial adviser.