Disclaimer
This guide provides general information only and is not financial advice. Your individual circumstances may differ. Consult a financial adviser or health insurance broker for personal recommendations.
Medicare Levy Surcharge — Who Pays It?
The Medicare Levy Surcharge (MLS) is an additional tax on top of the standard 2% Medicare levy. It applies to Australian taxpayers who earn above the income threshold and do not hold an eligible private hospital cover policy.
The MLS is designed to encourage higher income earners to take out private health insurance, reducing pressure on the public health system. The surcharge is calculated on your taxable income, reportable fringe benefits, and total net investment losses.
| Tier | Singles | Families | MLS Rate |
|---|---|---|---|
| Base Tier (No MLS) | $0 – $93,000 | $0 – $186,000 | 0% |
| Tier 1 | $93,001 – $108,000 | $186,001 – $216,000 | 1% |
| Tier 2 | $108,001 – $144,000 | $216,001 – $288,000 | 1.25% |
| Tier 3 | $144,001+ | $288,001+ | 1.5% |
The MLS thresholds have not been indexed since 2014-15. As wages grow, more Australians are crossing the $93,001 threshold each year through bracket creep. See our Medicare Levy Guide for the full breakdown of the standard 2% levy.
Private Health Insurance Rebate Tiers
The government provides a rebate on private health insurance premiums, with the amount varying by age and income. Lower income earners receive a higher rebate, while higher income earners receive a reduced rebate or none at all.
| Singles Income | Under 65 | 65–69 | 70+ |
|---|---|---|---|
| $93,000 or less | 24.608% | 28.710% | 32.812% |
| $93,001 – $108,000 | 16.405% | 20.507% | 24.608% |
| $108,001 – $144,000 | 8.202% | 12.303% | 16.405% |
| $144,001+ | 0% | 0% | 0% |
Family thresholds are double the singles thresholds. Add $1,500 for each dependent child after the first.
You can receive the rebate as either a premium reduction (paid directly to your insurer) or as a refundable tax offset when you lodge your tax return. Most people opt for the premium reduction to lower their monthly costs immediately.
PHI vs Surcharge — The Financial Decision
The key question is: is it cheaper to pay the MLS or buy private hospital cover? The answer depends on your income level. At lower MLS tiers, basic hospital cover is often cheaper than the surcharge. At higher incomes, the difference becomes even more pronounced.
| Income | Annual MLS Cost | Basic PHI (Est.) | Cheaper Option |
|---|---|---|---|
| $95,000 | $950 | ~$1,200 | MLS cheaper |
| $100,000 | $1,000 | ~$1,200 | MLS cheaper |
| $110,000 | $1,375 | ~$1,200 | PHI cheaper |
| $130,000 | $1,625 | ~$1,300 | PHI cheaper |
| $150,000 | $2,250 | ~$1,500 | PHI cheaper |
| $200,000 | $3,000 | ~$1,500 | PHI cheaper |
PHI estimates are for basic hospital cover (singles, under 65, no LHC loading). Rebate applied where eligible. Actual premiums vary by insurer and state.
The crossover point is typically around $105,000–$110,000 for singles. Below this, the surcharge may be cheaper than even basic cover. Above it, PHI becomes the better financial option — and you get hospital coverage as a bonus.
Important
Only hospital cover counts for MLS exemption. Extras-only policies (dental, optical, physio) do not exempt you from the surcharge. Your policy must be a compliant private hospital insurance product.
Lifetime Health Cover Loading
Lifetime Health Cover (LHC) loading is a government initiative that encourages Australians to take out private hospital cover earlier in life. If you don't hold hospital cover by 1 July after your 31st birthday, you pay a 2% loading on your premium for every year you are aged over 30 without cover.
For example, if you first take out hospital cover at age 40, you pay a 20% loading (10 years x 2%) on top of the base premium. The maximum loading is 70%. This can add significant cost to your premiums if you delay taking out cover.
The good news: LHC loading is removed after 10 continuous years of holding hospital cover. So even if you start late, the penalty eventually disappears. The loading also applies only to the hospital component of your premium, not to extras cover.
If you turn 31 soon and are above the MLS threshold, getting basic hospital cover now avoids both the surcharge and any future LHC loading.
How PHI Affects Your Take-Home Pay
Private health insurance impacts your take-home pay in two ways. First, the premium itself is an ongoing expense. Second, holding compliant cover removes the MLS from your tax calculation, which reduces your total tax bill.
If you are salary packaging your PHI premium through your employer (common in the not-for-profit and public hospital sectors), the premium is paid from pre-tax income, providing an additional tax benefit. See our Salary Sacrifice Calculator to model this scenario.
When using our Income Tax Calculator or Take-Home Pay Calculator, make sure to indicate whether you hold private health insurance. This determines whether the MLS is included in your tax calculation.
Frequently Asked Questions
About this guide▼
Medicare Levy Surcharge thresholds and rates are sourced from the ATO. PHI rebate tiers are based on current government rebate percentages. Premium estimates are approximate and based on average basic hospital cover costs for singles in major metropolitan areas. Actual premiums vary by insurer, state, age, and excess level. This guide is for general information only and does not constitute financial advice.
Sources & References
- 1Medicare levy surcharge— Australian Taxation Office
- 2Private health insurance rebate— Australian Taxation Office
- 3Medicare levy— Australian Taxation Office
- 4Lifetime Health Cover— Department of Health
Last verified: 14 March 2026. Our content is based on the latest information from official Australian government sources.
James Harrington
Verified AuthorSenior Tax & Payroll Analyst
CPA, Registered Tax Agent (25787011)
James is a CPA-qualified tax professional with over 14 years of experience in Australian taxation and payroll systems. He spent six years at the Australian Taxation Office working on PAYG withholding and individual tax return processing before moving into financial publishing. He now leads the tax content at Pay Calculator Australia, translating complex ATO legislation into clear, actionable guidance.
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