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Medicare levy surcharge – don’t get caught out!

Everyone's favourite tax, the MLS, hits Aussies without hospital insurance who earn over $97,000. Well, more like $88,000 once you add super. Time to dust off the calculator...

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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 rateSingle incomeCouples 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.

IncomeMLSMonthly costAnnual cost
$90,0000%$0$0
$97,0001%$81$970
$114,0001.25%$119$1,425
$152,0001.5%$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.

IncomeTierMLS %Annual MLS costSample hospital cover costPotential saving
$96,000Base tier0%$0$924Nil
$98,000Tier 11%$980$1,024-$44
$114,000Tier 21.25%$1,425$1,125$300
$152,000Tier 31.5%$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.

1 - 14 of 14
Name Product Treatments Price Apply
Bupa HI Pty Ltd logo
  • Rehabilitation
  • Joint reconstructions
  • Dental surgery
  • Hernia and appendix
  • Eye excluding cataracts
  • Pain management
  • Gynaecology
  • Lung and chest
$77.92
per month
Go to Site
All treatments
Frank Health Insurance logo
  • Rehabilitation
  • Joint reconstructions
  • Dental surgery
  • Hernia and appendix
  • Eye excluding cataracts
  • Pain management
  • Gynaecology
  • Lung and chest
$79.88
per month
Go to Site
All treatments
Frank Entry Hospital (Basic+)
Basic Plus$750 excess
Frank Health Insurance logo
  • Rehabilitation
  • Joint reconstructions
  • Dental surgery
  • Hernia and appendix
  • Eye excluding cataracts
  • Pain management
  • Gynaecology
  • Lung and chest
  • +5 other treatments covered
$82.48
per month
Go to Site
All treatments
starter basic
Basic$750 excess
ahm health insurance logo
  • Rehabilitation
  • Joint reconstructions
  • Dental surgery
  • Hernia and appendix
  • Eye excluding cataracts
  • Pain management
  • Gynaecology
  • Lung and chest
$82.71
per month
Go to Site
All treatments
Bupa HI Pty Ltd logo
  • Rehabilitation
  • Joint reconstructions
  • Dental surgery
  • Hernia and appendix
  • Eye excluding cataracts
  • Pain management
  • Gynaecology
  • Lung and chest
$82.78
per month
Go to Site
All treatments
GMHBA Limited logo
  • Rehabilitation
  • Joint reconstructions
  • Dental surgery
  • Hernia and appendix
  • Eye excluding cataracts
  • Pain management
  • Gynaecology
  • Lung and chest
$83.95
per month
Go to Site
All treatments
Bupa HI Pty Ltd logo
  • Rehabilitation
  • Joint reconstructions
  • Dental surgery
  • Hernia and appendix
  • Eye excluding cataracts
  • Pain management
  • Gynaecology
  • Lung and chest
  • +8 other treatments covered
$84.51
per month
Go to Site
All treatments
GMHBA Limited logo
  • Rehabilitation
  • Joint reconstructions
  • Dental surgery
  • Hernia and appendix
  • Eye excluding cataracts
  • Pain management
  • Gynaecology
  • Lung and chest
  • +5 other treatments covered
$85.23
per month
Go to Site
All treatments
starter basic
Basic$500 excess
ahm health insurance logo
  • Rehabilitation
  • Joint reconstructions
  • Dental surgery
  • Hernia and appendix
  • Eye excluding cataracts
  • Pain management
  • Gynaecology
  • Lung and chest
$85.76
per month
Go to Site
All treatments
essentials basic plus
Basic Plus$750 excess
ahm health insurance logo
  • Rehabilitation
  • Joint reconstructions
  • Dental surgery
  • Hernia and appendix
  • Eye excluding cataracts
  • Pain management
  • Gynaecology
  • Lung and chest
  • +5 other treatments covered
$87.04
per month
Go to Site
All treatments
Qantas Insurance logo
  • Rehabilitation
  • Joint reconstructions
  • Dental surgery
  • Hernia and appendix
  • Eye excluding cataracts
  • Pain management
  • Gynaecology
  • Lung and chest
  • +7 other treatments covered
$89.42
per month
Go to Site
All treatments
Bupa HI Pty Ltd logo
  • Rehabilitation
  • Joint reconstructions
  • Dental surgery
  • Hernia and appendix
  • Eye excluding cataracts
  • Pain management
  • Gynaecology
  • Lung and chest
  • +8 other treatments covered
$89.53
per month
Go to Site
All treatments
Qantas Insurance logo
  • Rehabilitation
  • Joint reconstructions
  • Dental surgery
  • Hernia and appendix
  • Eye excluding cataracts
  • Pain management
  • Gynaecology
  • Lung and chest
  • +7 other treatments covered
$94.43
per month
Go to Site
All treatments
ahm health insurance logo
  • Rehabilitation
  • Joint reconstructions
  • Dental surgery
  • Hernia and appendix
  • Eye excluding cataracts
  • Pain management
  • Gynaecology
  • Lung and chest
  • +5 other treatments covered
$94.84
per month
Go to Site
All treatments
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To make sure you get accurate and helpful information, this guide has been edited by Tim Bennett as part of our fact-checking process.
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Editor, Insurance & Innovations

Gary Ross Hunter was an editor at Finder, specialising in insurance. He’s been writing about life, travel, home, car, pet and health insurance for over 6 years and regularly appears as an insurance expert in publications including The Sydney Morning Herald, The Guardian and news.com.au. Gary holds a Kaplan Tier 2 General Advice General Insurance certification which meets the requirements of ASIC Regulatory Guide 146 (RG146). See full bio

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