Medicare levy surcharge – don’t get caught out!

What you need to know

• The Medicare levy surcharge is a tax that tries to get high earners to take out private hospital cover to ease the burden on Medicare.
• You will be taxed an extra 1% to 1.5% if your taxable income for MLS purposes is over $97,000 a year ($194,000 for couples or families) and do not have private hospital insurance.
• There are a range of cheap hospital policies that exempt you from the Medicare levy surcharge.

What is the Medicare levy surcharge?

The Medicare levy surcharge (MLS) is a tax for high income earners that don't hold private hospital insurance with a registered health fund. It's made to encourage high earners to take out private health insurance, theoretically easing the burden on the public system.

Common MLS mistakes - don't get caught out!

The MLS is an annoying, tricky thing to explain. Unfortunately, getting it wrong can lead to you getting caught out, which can result in you being thousands of dollars out of pocket at tax time.

• The MLS is different to the Medicare Levy. The Medicare levy is paid by everyone who pays tax, while the MLS is an extra tax for high earners without hospital cover.
• Taxable income for MLS purposes includes superannuation contributions and fringe benefits. This means your wage could be far less than the threshold and you might still have to pay the MLS.
• Exemption to the MLS is pro rata'd over the year. You can't just take out hospital cover at the end of the financial year and be exempt - you'll only be exempt for the time you hold it.

How much is the Medicare levy surcharge?

The MLS is between 1% and 1.5% of your taxable income for MLS purposes. If you're earning just over $97,000, that's a monthly tax of at least $81. Note this is on top of the 2% Medicare Levy and is payable for every day you don't have insurance within a financial year.

Medicare Levy Surcharge income thresholds – from 1 July 2024

From 1 July 2024, the new income thresholds are:

MLS rate	Single income	Couples income
0%	$0 - $97,000	$0 - $194,000
1%	$97,001 - $113,000	$194,001 - $226,000
1.25%	$113,001 - $151,000	$226,001 - $302,000
1.5%	$151,001+	$302,001+

How much will the Medicare levy surcharge cost you?

The table below shows some examples of different income brackets and how they would be taxed by the Medicare levy surcharge.

Income	MLS	Monthly cost	Annual cost
$90,000	0%	$0	$0
$97,000	1%	$81	$970
$114,000	1.25%	$119	$1,425
$152,000	1.5%	$190	$2,280

What the heck is "taxable income for MLS purposes?"

The MLS doesn't just take your wage into account. The ATO uses a special definition of income to calculate the MLS. The calculation takes a range of factors into account, including:

• Taxable income. Including the net amount paid towards family trust distribution tax.
• Reportable fringe benefits. Including all those listed on your PAYG payment summary.
• Total net investment losses. Including net financial investment losses and net rental property losses.
• Super contributions. Including deductible personal super contributions and reportable employer super contributions.
• Spousal trust income. If you have a spouse, their share of the net income of a taxable trust will be taken into account.

• This is really important! With a compulsory superannuation rate of 11.5%, you'll pay the MLS with a wage of just $88,000. That's because your taxable income for MLS purposes will be $97,005 once super is included, over the threshold. With fringe benefits like a company car, your wage could be even lower.

Editor's note: Personally, I think this kinda sucks. It's a trap you need to be really financially savvy to know about, but can cost normal Aussies thousands - not cool. But now you know, hopefully you can avoid it.

How to avoid the medicare levy surcharge

You can avoid the MLS by having an "appropriate level" of private hospital insurance. That means any hospital policy which has an excess of $750 or less for singles, or $1,500 or less for couples and families. Extras cover or travel insurance with medical cover aren't enough - it has to be hospital cover.

Fortunately, you can often buy a hospital policy for less than the Medicare levy surcharge. That means you may actually save money by getting private hospital insurance.

Potential savings with basic hospital cover

The table below details how much a typical income would be taxed for the MLS, and how much the cheapest hospital policy would cost them. The last column shows the difference - it's not always a saving! We used the price for a single, 30 year old policy holder with a $750 excess in NSW.

Note the price of the policy goes up in each tier. This is because the private health insurance rebate uses the same thresholds as the MLS. So when you step up an MLS tier, you're also stepping down a rebate tier.

Income	Tier	MLS %	Annual MLS cost	Sample hospital cover cost	Potential saving
$96,000	Base tier	0%	$0	$924	Nil
$98,000	Tier 1	1%	$980	$1,024	-$44
$114,000	Tier 2	1.25%	$1,425	$1,125	$300
$152,000	Tier 3	1.5%	$2,280	$1,226	$1,054

• When looking for a hospital policy to avoid the MLS, don't just pick the cheapest. Basic tier policies are basically junk, with no treatments fully covered. Instead, think about upgrading to a Basic Plus policy at least, which are as little as an extra $5 a month.

Cheap health insurance to avoid the Medicare levy surcharge

If you're ready to save, here are some cheap hospital policies from Finder partners.

Why you can trust Finder's health insurance experts

Frequently asked questions

• How much is the Medicare levy surcharge?

  The Medicare levy surcharge is an additional tax of between 1% and 1.5%, depending on how much you earn. The full 1.5% is only applied to singles who earn more than $151k a year, or couples earning more than $302k a year. This is in addition to the 2% Medicare Levy that most tax payers pay.

• How can I avoid the Medicare levy surcharge?

  You can avoid the Medicare levy surcharge by taking out an eligible hospital cover policy. You cover will need to have an excess of no more than $750 for singles, or $1500 for couples.

• How many Australians are impacted by the MLS?

  It's hard to be exact. Finder looked at earnings figures from the 2021 Census. Two years ago, there were:

  • 3.51 million Australians earning $91,000 per year or more.
  • 1.53 million households with a combined income of more than $182,000.

  Even with lower-than-average wage rises, you'd expect most would fall above the minimum thresholds today.

  APRA stats show around 55% of the population isn't covered by hospital cover, meaning we're likely talking millions not hundreds of thousands.

  If that includes you, consider hospital insurance.

• Do my partner and I both need hospital cover to avoid the MLS?

  Yes, if you both earn a combined income of more than $194,000 in the current financial year, you must hold hospital cover for you and your partner to avoid the MLS. If your partner or any dependent isn't covered, you will pay the surcharge.

• Do both spouses pay the Medicare Levy Surcharge?

  Essentially, yes. If you have a spouse, the ATO uses your combined income to calculate your surcharge.

• If I switch my hospital cover, will I need to re-serve my waiting periods?

  No. The industry follows portability rules to make sure there's competition among health funds. You won't need to re-serve any waiting periods you've already served.