The Medicare levy and surcharge

The Medicare levy helps fund Australia’s public health system. For most residents it’s 2% of your taxable income, charged on top of your income tax. On a $90,000 salary that’s $1,800 a year; on $60,000 it’s $1,200.

Lower earners get relief. If your taxable income is below the low-income threshold — around $28,000 for a single person in 2026-27 — you pay no levy at all. Just above that there’s a shade-in zone where the levy is gradually phased in rather than hitting the full 2% straight away, so it never jumps from nothing to the full amount at a single dollar. The thresholds are higher for families and are indexed each year. Foreign residents and most working holiday makers don’t pay the Medicare levy at all.

This is the one that catches higher earners out. The Medicare Levy Surcharge (MLS) is an extra 1% to 1.5% on top of the 2% levy. It applies only if two things are true: your income is above the threshold, and you (and your dependants) don’t hold an appropriate level of private hospital cover. It exists to encourage higher earners to take private cover and ease demand on the public system.

Here are the singles rates for 2026-27:

Family thresholds are double the singles figures — starting at $210,000 for 2026-27 — and rise by $1,500 for each dependent child after the first. Source: ATO, Medicare levy surcharge income thresholds and rates.

The surcharge isn’t tested against your salary alone. The ATO uses your income for MLS purposes, which adds several things back on top of your taxable income — including reportable fringe benefits, reportable super contributions (like salary sacrifice), and net investment or rental losses. That means the surcharge can bite at a lower headline salary than you might expect, so it’s worth checking if you’re anywhere near the threshold.

Here’s the practical part. If you’re a single earning $110,000 with no hospital cover, the 1% surcharge costs you about $1,100 a year — money you get nothing tangible for. A basic private hospital policy can often cost about the same or a little more, but at least buys you actual cover. For many people just over the threshold, taking out a basic policy effectively replaces a pure tax with something they can use.

The maths flips as income rises: at higher incomes the 1.25% or 1.5% surcharge on a large salary can far exceed the cost of a basic policy, making cover the clearly cheaper choice. Our calculator lets you toggle private hospital cover on and off to see the surcharge appear and disappear from your take-home pay.

One timing note: to avoid the surcharge for a full year you need to hold cover for the whole year — taking out a policy in June won’t undo eleven months of surcharge. This is general information, not personal advice; whether a policy suits you depends on more than the tax.