Medicare Levy
Medicare Levy Surcharge
Take out hospital cover today and avoid the Medicare Levy Surcharge
If you earn over $101,0000 a year on your own or $202,000 as a couple, family or single parent and you don’t have private hospital cover, you may have to pay the Medicare Levy Surcharge. This surcharge was introduced by the government to encourage people with higher incomes to get private health insurance and take pressure off the public health system.
Taking out eligible hospital insurance could help you pay less at tax time, so it’s worth checking if you’re paying the surcharge before the end of the financial year.
1. The Medicare Levy (The 2% Tax)
Most Australian residents pay the Medicare Levy to help fund the public healthcare system. It is a flat 2% of your taxable income and is paid by almost everyone, regardless of whether you have private health insurance or not.
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- Exemptions: People on low incomes (earning below certain thresholds) may be exempt or pay a reduced rate.
2. Medicare Levy Surcharge (The "Penalty" Tax)
The Medicare Levy Surcharge (MLS) is an additional tax (on top of the 2%) ranging from 1% to 1.5%. It only applies to people who earn above a certain income and do not have an "appropriate level" of private hospital cover.
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To avoid the MLS for the 2025–26 year, your income must be below these thresholds, or you must hold private hospital cover:
|
Tier |
Single Income |
Family Income* |
MLS Rate |
|
Base Tier |
Up to $101,000 |
Up to $202,000 |
0% |
|
Tier 1 |
$101,001 – $118,000 |
$202,001 – $236,000 |
1.0% |
|
Tier 2 |
$118,001 – $158,000 |
$236,001 – $316,000 |
1.25% |
|
Tier 3 |
$158,001+ |
$316,001+ |
1.5% |
*For families with children, the threshold increases by $1,500 for each child after the first.
Key Rule: To avoid the surcharge, your private health insurance must be a Hospital policy with an excess of $750 or less (singles) or $1,500 or less (families). "Extras-only" cover does not count.
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3. Private Health Insurance Rebate (The Discount)
To make private health more affordable, the government provides a rebate (a contribution toward your premiums). The amount you get back depends on your income tier and the age of the oldest person on the policy.
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For the period 1 April 2025 to 31 March 2026, the rebate rates for those under 65 are:
- Base Tier: 24.288% rebate
- Tier 1: 16.192% rebate
- Tier 2: 8.095% rebate
- Tier 3: 0% rebate (No rebate)
Note: These percentages are slightly higher if you are aged 65 or over.
How to claim the rebate:
- Premium Reduction: Most people choose to have the rebate applied directly to their health insurance bill, meaning they pay a lower premium every month.
- Tax Offset: Alternatively, you can pay the full premium and claim the rebate back as a "tax offset" when you lodge your annual tax return.