How to Avoid the Medicare Levy Surcharge (MLS) in 2026: The Ultimate Guide for High-Income Earners in Australia
Most people know about the Medicare Levy — the standard 2% that comes off almost everyone's taxable income to help fund the public health system. What catches people off guard is the Medicare Levy Surcharge, which sits on top of that and applies specifically to higher earners who don't hold private hospital cover.
I've spoken to people earning $105,000 who had no idea they were being charged an extra 1% — roughly $1,050 — straight to the ATO each year. They assumed Medicare covered everything and didn't think about private health insurance at all. That's an easy and completely avoidable mistake.
Here's how the MLS works, what the current thresholds are, and what you actually need to do to avoid it.
What Is the Medicare Levy Surcharge?
The MLS is a government policy designed to push higher-income earners toward private health insurance, taking some pressure off the public hospital system in the process. It works like this:
- Standard Medicare Levy (2.0%): Paid by almost all Australian taxpayers, regardless of health insurance status.
- Medicare Levy Surcharge (1.0%–1.5% extra): An additional charge applied to higher earners who don't hold appropriate private hospital cover.
At the top tier, your combined healthcare tax hits 3.5% of your income. For someone earning $170,000, that's nearly $6,000 a year going to the ATO — a significant chunk that a basic hospital policy could largely offset.
The 2025–26 Income Thresholds
The ATO calculates MLS based on what they call "income for MLS purposes" — which is broader than just your salary. It includes reportable fringe benefits, reportable super contributions (like salary sacrifice), and any net rental or investment losses. Worth knowing if your situation involves any of those.
Singles
| Income range | MLS rate | Extra tax on $120k income |
|---|---|---|
| Under $101,000 | 0% — no surcharge | $0 |
| $101,001 – $118,000 | 1.0% | $1,200 |
| $118,001 – $158,000 | 1.25% | $1,500 |
| $158,001 and above | 1.5% | $1,800+ |
Families and couples
| Combined income range | MLS rate |
|---|---|
| Under $202,000 | 0% — no surcharge |
| $202,001 – $236,000 | 1.0% |
| $236,001 – $316,000 | 1.25% |
| $316,001 and above | 1.5% |
🏥 Medicare Levy Surcharge Calculator — 2025–26
See your MLS liability and whether private health insurance saves you money.
MLS without cover
$1,500
paid to ATO
Cost of cover
$1,100
estimated annual premium
Estimate only. Premium costs vary by fund, age, and state. Based on ATO 2025–26 thresholds.
How to Avoid the MLS — What Actually Qualifies
The only way to legally eliminate the surcharge is to hold an appropriate level of private hospital cover from a registered Australian health fund. But there are rules about what counts.
Hospital cover, not just extras
A policy that only covers extras — dental, optical, physio, chiro — does not exempt you from the MLS. You specifically need hospital cover. A combined hospital and extras policy works, but it's the hospital component that the ATO cares about.
Watch the excess level
To qualify, the excess on your hospital policy can't be too high:
- Singles: maximum $750 excess
- Couples and families: maximum $1,500 excess
The pro-rata rule
The MLS is calculated on a daily basis. If you only hold hospital cover for part of the year — say you bought it in October — you're exempt for those days and charged the surcharge for the days before. To avoid the surcharge completely, you need cover in place for all 365 days of the financial year. If your income is approaching the threshold mid-year, getting cover sorted sooner rather than later cuts your liability proportionally.
The Numbers: Is Private Cover Actually Worth It?
For most people in Tier 1 and above, yes — often by a meaningful margin.
Take someone earning $120,000 as a single person. They're in Tier 2, so the MLS rate is 1.25%. Their surcharge liability: $1,500 paid directly to the ATO with nothing to show for it.
A basic, no-frills private hospital policy for someone in that income bracket typically runs somewhere between $1,000 and $1,200 per year depending on age, state, and fund. By switching that money from the tax office to a health fund, they save a few hundred dollars and walk away with actual hospital cover.
It's not always this clear-cut — older policyholders face higher premiums, and Lifetime Health Cover loading adds costs if you're over 31 and joining for the first time. But for most people sitting in Tier 1 or Tier 2, running the numbers usually tips in favour of getting covered.
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