What’s the difference between the Medicare levy and the Medicare levy surcharge?

Many people getting their tax notice of assessment wonder why they see amounts for the Medicare levy and Medicare levy surcharge. Here’s how it works.

Medicare levy

The Medicare levy’s a compulsory charge that helps fund Australia’s public healthcare system. Almost all Australians pay this levy, which is 2% of your taxable income. The levy’s generally withheld from your pay by your employer throughout the year, so you may not notice it until tax time.

It’s important to note that having private health insurance doesn’t exempt you from paying the Medicare levy; it only affects your liability for the Medicare levy surcharge.

In certain limited cases, such as if you’re a low-income earner, a foreign resident or have a medical exemption, you may qualify for a reduced rate or full exemption.

Medicare levy surcharge

The Medicare levy surcharge (MLS) adds an extra charge to encourage higher‑income earners to take out private hospital insurance and reduce pressure on the public healthcare system. You do not have the MLS automatically withheld from your income; instead, the ATO calculates it when you lodge your tax return.

You may be liable for the MLS if your income exceeds the MLS threshold and you, your spouse and your dependent children don’t all have an appropriate level of private patient hospital cover for the entire income year. The surcharge rates vary based on your income tier, beginning at 1% for singles with 2025–2026 income over $101,000 and families with income over $202,000.

Your income for MLS purposes includes several components beyond your taxable income, like reportable fringe benefits, total net investment losses and reportable super contributions. If you have a spouse, their income’s also considered.

Private health insurance

To avoid the MLS when your income’s over the threshold, you need an appropriate level of private patient hospital cover. Singles need a policy with an excess of $750 or less, and couples or families need a policy with an excess of $1,500 or less. Your policy must cover you, your spouse and all dependants for the full income year to avoid the surcharge.

Keep in mind that extras-only cover (such as for dental or optical) and travel insurance don’t qualify as private patient hospital cover for MLS purposes.

Important: Clients should not act solely on the basis of the material contained here. Items herein are general comments only and do not constitute or convey advice per se. Also, changes in legislation may occur quickly. We, therefore, recommend that our formal advice be sought before acting in any of the areas.