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.
Your tier is set by your income for MLS purposes: taxable income plus reportable fringe benefits, total net investment losses and reportable super contributions. The rate is then charged on your taxable income plus reportable fringe benefits. The 2026-27 tiers:
| Tier | Singles | Families | MLS Rate |
|---|---|---|---|
| Base tier (no MLS) | $105,000 or less | $210,000 or less | 0% |
| Tier 1 | $105,001 – $123,000 | $210,001 – $246,000 | 1% |
| Tier 2 | $123,001 – $164,000 | $246,001 – $328,000 | 1.25% |
| Tier 3 | $164,001 or more | $328,001 or more | 1.5% |
The thresholds have risen every year since 2022-23, when the singles threshold was $90,000. Family thresholds rise $1,500 for each dependent child after the first. Work out your own tier and surcharge with the Medicare levy surcharge calculator; the standard 2% levy is covered by our Medicare levy calculator.
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+ |
|---|---|---|---|
| $105,000 or less | 24.118% | 28.139% | 32.158% |
| $105,001 – $123,000 | 16.079% | 20.098% | 24.118% |
| $123,001 – $164,000 | 8.038% | 12.058% | 16.079% |
| $164,001 or more | 0.000% | 0.000% | 0.000% |
Rates from 1 July 2026 to 31 March 2027, by the age of the oldest person on the policy. Families use the family column in the surcharge table above. Source: ATO, income thresholds and rates for the private health insurance rebate.
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? Premiums vary too much by insurer, state and excess for a single answer, so work out your break-even premium: the surcharge divided by the share of the premium you pay after your rebate. A quote below that, before the rebate, costs less than the surcharge.
| Single, taxable income | Annual MLS | Rebate (under 65) | Cover is cheaper below |
|---|---|---|---|
| $110,000 | $1,100 | 16.079% | $1,311 a year |
| $130,000 | $1,625 | 8.038% | $1,767 a year |
| $150,000 | $1,875 | 8.038% | $2,039 a year |
| $200,000 | $3,000 | 0.000% | $3,000 a year |
2026-27 tiers, no fringe benefits, a full year without cover. Premium before rebate, ignoring lifetime health cover loading. Enter your own quote in the Medicare levy surcharge calculator.
At or under $105,000 (singles) there is no surcharge to avoid, so cover is a health decision rather than a tax one.
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 private patient hospital cover with an excess of $750 or less for singles ($1,500 for couples and families).
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, and private health insurance rebate rates, are the ATO's 2026-27 figures, verified 23 September 2026. Break-even premiums are calculated from those figures; this guide does not estimate premiums, which vary by insurer, state, age and excess. General information only, not 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: 9 October 2026. Our content is based on the latest information from official Australian government sources.
Anita Bell
AuthorFounder & Senior Bookkeeper
Accountancy degree (2015); certified in Xero, QuickBooks Online, MYOB, Saasu, Zoho and Reckon One
Anita Bell earned her accountancy degree in 2015 and has worked as a senior bookkeeper with Prime Bookkeeping for over 5 years. This built her skills in Australian and New Zealand tax legislation and industry regulations. She is certified in Xero, QuickBooks Online, MYOB, Saasu, Zoho and Reckon One, and works with payroll and rostering software including Gusto, Deputy, Tsheets and KeyPay. She has strong experience in hospitality, building and construction, financial services, real estate, ecommerce, and medical and health services.
Areas of Expertise