The Medicare Levy Surcharge (MLS) is an additional tax designed to encourage Australians to take out private hospital insurance and reduce pressure on the public healthcare system. If you earn above certain income thresholds and don’t have an appropriate level of private hospital cover, you may be liable to pay this surcharge on top of the standard 2% Medicare levy. This blog post explains the MLS thresholds, rates, and how they apply for the 2024–25 and upcoming 2025–26 financial years.
What Is the Medicare Levy Surcharge?
The Medicare Levy Surcharge is a tax imposed on Australian taxpayers who earn above specified income levels but do not have an approved private hospital insurance policy. The surcharge ranges from 1% to 1.5% of your taxable income, depending on your income bracket, and is in addition to the regular Medicare levy.
Its purpose is to encourage higher-income earners to take up private hospital cover, which helps ease demand on the public hospital system.
Income Thresholds and Rates for 2024–25
For the 2024–25 financial year (1 July 2024 to 30 June 2025), the MLS thresholds and rates are as follows:
| Income Tier | Singles (Taxable Income) | Families (Combined Taxable Income) | MLS Rate |
|---|---|---|---|
| Base Tier | $97,000 or less | $194,000 or less | 0% |
| Tier 1 | $97,001 – $113,000 | $194,001 – $226,000 | 1.0% |
| Tier 2 | $113,001 – $151,000 | $226,001 – $302,000 | 1.25% |
| Tier 3 | $151,001 or more | $302,001 or more | 1.5% |
Note: For families, the income threshold increases by $1,500 for each dependent child after the first.
Changes Coming for 2025–26
Starting from 1 July 2025, the income thresholds will increase slightly to reflect wage growth:
| Income Tier | Singles (Taxable Income) | Families (Combined Taxable Income) | MLS Rate |
|---|---|---|---|
| Base Tier | $101,000 or less | $202,000 or less | 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 or more | $316,001 or more | 1.5% |
These adjustments ensure the thresholds keep pace with inflation and average wage growth.
Who Needs to Pay the Medicare Levy Surcharge?
You will be required to pay the MLS if:
- You are a single person earning above the income thresholds and do not have an approved private hospital insurance policy.
- You are a family or couple with combined income above the thresholds without private hospital cover.
- You have dependents who are not covered by an approved private hospital policy.
It’s important to note that extras-only health insurance policies do not exempt you from the MLS; only hospital cover counts.
How Is the MLS Calculated?
The surcharge is calculated as a percentage of your taxable income for MLS purposes, which includes your adjusted taxable income plus certain fringe benefits and reportable superannuation contributions.
For example, if you are a single taxpayer earning $120,000 without private hospital cover, you fall into Tier 2 and will pay 1.25% MLS, which equals $1,500.
Why Is the Medicare Levy Surcharge Important?
The MLS encourages higher earners to take up private hospital insurance, which helps reduce the demand on public hospitals and supports the sustainability of the Medicare system. By having private hospital cover, you can avoid paying this surcharge and potentially gain faster access to elective surgeries and private hospital care.
How to Avoid Paying the MLS
- Take out an approved private hospital insurance policy with a registered health fund.
- Ensure your policy meets the minimum coverage requirements to be exempt from the surcharge.
- Review your health insurance annually to maintain coverage that meets MLS criteria.
Understanding the Medicare Levy Surcharge thresholds and rates is essential for Australian taxpayers, especially those with higher incomes. Keeping track of your income and ensuring you have the appropriate private hospital cover can save you from paying this additional tax. The upcoming threshold increases in 2025 reflect the government’s effort to keep the surcharge fair and aligned with economic changes.