The Medicare levy surcharge (MLS) often turns up as a surprise on a notice of assessment. It is avoidable, but only if the right type of cover is in place on the right days.
This guide covers the MLS thresholds and tiers for 2025-26 and 2026-27, what counts as appropriate hospital cover, the excess limits, how income for MLS purposes is worked out, family rules and part-year cover. Every figure was checked against the ATO MLS thresholds page and privatehealth.gov.au on 7 October 2026.
It is written for singles and families earning around or above the thresholds. If you are also working out your marginal rate, see our 2025-26 tax rates guide.
Key takeaways
- 2025-26 base thresholds: $101,000 singles and $202,000 families. For 2026-27: $105,000 and $210,000.
- Rates are 1%, 1.25% or 1.5%, on top of the 2% Medicare levy.
- Appropriate cover is hospital cover from a registered insurer with an excess of $750 or less (singles) or $1,500 or less (couples and families). Extras-only cover does not count.
- The tier uses income for MLS purposes, which adds back net investment losses, reportable fringe benefits and reportable super contributions.
- The surcharge is calculated per day without cover, so a gap still costs you.
- Family threshold rises by $1,500 for each dependent child after the first.
MLS thresholds at a glance
| Tier | Rate | Singles 2025-26 | Families 2025-26 | Singles 2026-27 | Families 2026-27 |
|---|---|---|---|---|---|
| Base | 0% | $101,000 or less | $202,000 or less | $105,000 or less | $210,000 or less |
| Tier 1 | 1% | $101,001-$118,000 | $202,001-$236,000 | $105,001-$123,000 | $210,001-$246,000 |
| Tier 2 | 1.25% | $118,001-$158,000 | $236,001-$316,000 | $123,001-$164,000 | $246,001-$328,000 |
| Tier 3 | 1.5% | $158,001 or more | $316,001 or more | $164,001 or more | $328,001 or more |
Source: ATO MLS income, thresholds and rates, privatehealth.gov.au Medicare levy surcharge, checked 7 October 2026. Family thresholds increase by $1,500 for each MLS dependent child after the first.
What is the Medicare levy surcharge?
The MLS is an extra levy for people above the income thresholds who do not hold an appropriate level of private patient hospital cover for themselves, their spouse and dependants. It is separate from the 2% Medicare levy most taxpayers pay.
Older articles quote a $93,000 singles threshold. That is out of date: the 2024-25 threshold was $97,000, 2025-26 is $101,000 and 2026-27 is $105,000, per the ATO MLS pages.
What counts as appropriate hospital cover?
According to the ATO, it means private patient hospital cover from a registered health insurer for treatment in an Australian hospital or day hospital.
- Excess limit: $750 or less for singles, $1,500 or less for couples and families. Privatehealth.gov.au says these limits have applied since 1 April 2019.
- Extras do not count: general treatment cover for dental, optical or physio does not stop the surcharge.
- Overseas and travel cover do not count: cover from an overseas fund or travel insurance is not private patient hospital cover.
- Everyone needs it: you, your spouse and all your dependants must be covered.
How is income for MLS purposes worked out?
Your tier is based on income for MLS purposes, not just taxable income. It is the total of:
- Taxable income, including the net amount on which family trust distribution tax has been paid.
- Reportable fringe benefits from your income statement. Our FBT return services page explains how these arise.
- Total net investment losses, both financial investments and rental property. Negative gearing reduces taxable income but is added back here – see our negative gearing guide.
- Reportable super contributions, including salary sacrifice and deductible personal contributions. See our salary sacrifice guide.
- Exempt foreign employment income and, for families, a spouse’s share of certain trust income.
Once the tier is known, the ATO M2 instructions apply the rate to your taxable income, reportable fringe benefits and any amount on which family trust distribution tax was paid – not to the added-back losses or super.
| Component | Used to set the tier? | Surcharge charged on it? |
|---|---|---|
| Taxable income | Yes | Yes |
| Reportable fringe benefits | Yes | Yes |
| Amount subject to family trust distribution tax | Yes | Yes |
| Total net investment losses | Yes | No |
| Reportable super contributions | Yes | No |
How do the family rules work?
If you had a spouse on 30 June, the ATO uses your combined income against the family threshold. A spouse whose own income for MLS purposes is $28,011 or less does not pay the surcharge for 2025-26, per the M2 instructions.
A dependent child for MLS purposes is under 21, or 21 to 24 and studying full-time, per the ATO family and dependants page. The family threshold rises by $1,500 for each dependent child after the first.
What happens with part-year cover?
The surcharge is worked out for each day you were above the threshold without appropriate cover. Take out cover halfway through the year and you pay for the uncovered days only. Change from single to a couple mid-year and the ATO looks at the days in each status, per its paying the MLS page.
Worked example: Jess, a rental loss and a late policy
Jess is single. In 2025-26 her taxable income is $110,000 after a $10,000 net rental loss. She has no reportable fringe benefits or super contributions.
Income for MLS purposes: $110,000 + $10,000 = $120,000. That sits in tier 2 ($118,001-$158,000), so her rate is 1.25%, not 1%.
The rate applies to taxable income: $110,000 x 1.25% = $1,375 for a full year without cover.
Jess takes out appropriate hospital cover on 1 January 2026, so she was uncovered for 184 days (1 July to 31 December 2025). MLS: $1,375 x 184 / 365 = $693.15. Cover from 1 July would have reduced it to nil.
Can temporary residents avoid the surcharge?
If you are not entitled to Medicare benefits, you may be able to claim a Medicare levy exemption. The ATO exemption page requires a Medicare Entitlement Statement from Services Australia, and for a full exemption any dependants, including a spouse, must also be in an exemption category. Get advice before relying on this to skip cover.
Rule of thumb: Have appropriate hospital cover in place from 1 July for everyone in the family, and check your income for MLS purposes – not just your salary – against the threshold.
Common mistakes with the Medicare levy surcharge
- Relying on extras-only cover: it does not stop the surcharge.
- Choosing a high excess: above $750 single or $1,500 family and the policy does not count.
- Forgetting add-backs: rental losses, salary sacrifice and fringe benefits can lift you into a tier.
- Leaving a spouse or child uncovered: the whole family needs hospital cover.
- Using old thresholds: $93,000 and $97,000 are no longer current.
Our earlier article on the Medicare levy surcharge in 2025 covers the older figures, and our guide to getting a bigger tax refund covers other legitimate savings.
FAQ about the Medicare levy surcharge
What are the MLS thresholds for 2025-26?
For 2025-26 there is no surcharge for singles with income for MLS purposes of $101,000 or less, or families with $202,000 or less. Above that the rate is 1%, 1.25% or 1.5% depending on the tier. The family threshold rises by $1,500 for each MLS dependent child after the first. For 2026-27 the base thresholds rise to $105,000 and $210,000.
Does extras cover stop the surcharge?
No. The ATO says general treatment cover, commonly called extras, is not private patient hospital cover. Travel insurance and cover from an overseas fund do not count either. To avoid the surcharge you need hospital cover from a registered Australian health insurer with an excess no higher than $750 for singles or $1,500 for couples and families.
Is the surcharge charged on my whole income?
The tier is worked out using income for MLS purposes, which adds reportable fringe benefits, total net investment losses and reportable super contributions to taxable income. The rate itself is then applied to taxable income, reportable fringe benefits and any amount on which family trust distribution tax was paid, and only for the days you were not covered.
Do both spouses need hospital cover?
Yes. To avoid the surcharge, you, your spouse and all your dependants need an appropriate level of private patient hospital cover. If you had a spouse on 30 June, the ATO uses your combined income against the family threshold. A spouse whose own income for MLS purposes is $28,011 or less does not pay it for 2025-26.
Can temporary residents avoid the surcharge?
People who are not entitled to Medicare benefits may be able to claim a Medicare levy exemption. The ATO requires a Medicare Entitlement Statement from Services Australia, and dependants must also be in an exemption category for a full exemption. Whether the surcharge applies for those days depends on your circumstances, so check before buying a policy.
Talk to specialist before it costs you
15-minute discovery call. No obligation, no jargon.
Talk to a registered tax agent
Nanak Accountants can calculate your income for MLS purposes, check whether a policy meets the rules and plan around salary sacrifice or investment losses through our tax planning service. Call 1300 626 258 or visit Nanak Accountants.
This article is general information only and is not personal tax or legal advice. Figures and rules were checked against the ATO Medicare levy surcharge, appropriate cover, family, M2 instructions and Medicare levy exemption pages, privatehealth.gov.au and Services Australia on 7 October 2026. Rates and thresholds change, so confirm the current position before acting.
