Medicare Levy Surcharge & Private Health Cover (2027 Guide)

Short answer

The Medicare Levy Surcharge (MLS) is an extra 1% to 1.5% tax on Australians whose income for MLS purposes is above $105,000 (singles) or $210,000 (families) in FY2026–27 and who don't hold appropriate private hospital cover. It sits on top of the standard 2% Medicare levy. For many people just over the threshold, a basic hospital policy costs less than the surcharge itself — so this is one of the few tax rules where the "fix" can genuinely pay for itself.

Key facts

What's the difference between the Medicare levy and the surcharge?

Australia's Medicare system is funded partly by two separate charges that people often mix up:

1. Medicare levy (2%) — paid by most taxpayers on taxable income. Low-income earners get a reduction or exemption, and you can't avoid it with health insurance.
2. Medicare Levy Surcharge (1%–1.5%) — an additional charge only for higher-income earners without appropriate private hospital cover. This one you can avoid.

If you're on a middle income with no private cover, you pay the levy but not the surcharge. The surcharge only bites once you cross the threshold.

Who pays the MLS in 2026–27?

The ATO indexes the thresholds each year. For FY2026–27 they're higher than the $101,000 / $202,000 that applied in 2025–26 — so if you were just over last year, check again. From the ATO's MLS thresholds page:

For families, the threshold increases by $1,500 for each dependent child after the first. So a couple with three kids has a family threshold of $213,000.

"Family" here means you had a spouse (including de facto) on 30 June, or you had a dependent child at any time in the year. Single parents use the family tiers.

Two traps worth knowing:

• Your partner's income counts. You're tested on combined income for MLS purposes, and if either of you (or a dependent child) isn't covered, the surcharge applies.
• Part-year cover = part-year surcharge. If you held hospital cover for 200 days, you pay the surcharge for the other 165 days. That's why people rushing to take out cover in June still get a surcharge for most of that year.

What counts as "income for MLS purposes"?

This is where people get caught. It's not just taxable income. The ATO adds:

• Reportable fringe benefits (a car or salary-packaged benefits from your employer)
• Reportable super contributions — including salary sacrifice to super
• Net investment losses (for example, a negatively geared property)
• Net foreign income
• Certain trust distributions

So a nurse on $100,000 who salary-sacrifices $8,000 into super has an MLS income of $108,000 — over the threshold, even though her taxable income is well under it. The salary sacrifice still saves her income tax; it just doesn't hide her from the surcharge. If you're weighing up that trade-off, what is salary sacrifice walks through the numbers.

What kind of cover actually avoids the surcharge?

To avoid the MLS you need private hospital cover — not extras-only — from a registered Australian health insurer that:

• covers hospital treatment, and
• has an excess of no more than $750 for singles or $1,500 for couples and families.

Basic and Bronze hospital policies usually qualify. Many Australians hold one purely for the tax outcome and never use it. That's a legitimate choice — just read what's excluded so you're not surprised if you do need it. Overseas visitor cover generally doesn't count. The government's privatehealth.gov.au MLS page lets you compare qualifying policies side by side.

Don't forget the rebate

If you do take out cover, the government pays part of your premium through the private health insurance rebate, and it's income-tested using the same tiers. Per the ATO rebate thresholds page, for someone under 65 in FY2026–27:

Higher percentages apply to people aged 65–69 and 70+. You can take the rebate as a premium discount through your insurer (nominate a tier) or as a tax offset in your return. If you nominate the wrong tier, the ATO simply squares it up in your assessment — no penalty, but it can mean a surprise bill.

Worked example: does cover pay for itself?

Say you're single, 34, earning $130,000 with no private hospital cover.

• MLS tier: Tier 2 (1.25%)
• Surcharge: $130,000 × 1.25% = $1,625

Now take out basic hospital cover with a $750 excess at, say, $1,400 a year. In Tier 2 you get an 8% rebate, so your net premium is about $1,290.

You come out roughly $335 ahead and you hold hospital cover. Push your income to $170,000 (Tier 3, 1.5% = $2,550 surcharge, no rebate) and the gap widens to around $1,150 a year in favour of cover.

At $106,000, though, the surcharge is only $1,060 while cover might cost $1,150 — so just over the line, it's a close call and depends on whether you value having private cover.

One more thing for your 30s: Lifetime Health Cover loading adds 2% to your hospital premium for every year past 30 you go without cover, up to 70%. It's a separate rule from the MLS, but it's the reason many people take out cover at 31 even if their income is below the threshold.

What to do before 30 June

• Work out your income for MLS purposes — taxable income plus salary sacrifice, fringe benefits and investment losses. If it's near $105,000 (single) or $210,000 (family), pay attention.
• If you're over, get quotes for basic hospital cover with a compliant excess ($750 / $1,500).
• Remember it's pro-rata: cover taken out on 1 March only removes the surcharge for the last four months of the year. To avoid it entirely next year, be covered by 1 July.
• Make sure everyone in the family is on the policy.
• Check which rebate tier you nominated with your insurer.

For the bigger picture of what else to tick off before EOFY, my Australian tax return guide has the full checklist, and how Australian tax brackets work explains where the 2% levy fits into your overall rate.

The Medicare Levy Surcharge is less a penalty than a nudge. For most people above the threshold, the maths lands on the side of holding basic hospital cover — you pay about the same or less, and you get something for it.