Medicare Levy Surcharge & Private Health Cover (2025)
How your income, the Medicare Levy Surcharge and private hospital cover connect in Australia for 2025 — the thresholds, what counts as income, and how cover can save you tax.
By AvaShort answer
When tax time arrives, many Australians are surprised by an extra charge on their notice of assessment — the Medicare Levy Surcharge (MLS). If your income is over the threshold and you don't hold appropriate private hospital cover, you may be paying more tax than you need to. Often, basic hospital cover costs less than the surcharge itself.
Two separate levies
Australia's Medicare system is largely funded by two levies:
- Medicare Levy (2%) — applies to most taxpayers, calculated as 2% of taxable income.
- Medicare Levy Surcharge (1%–1.5%) — an extra tax for higher-income earners who don't have an appropriate level of private hospital cover.
Who pays the MLS? (2024–25 thresholds)
| Tier | Singles | Families | Surcharge |
|---|---|---|---|
| Base | $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% |
For families, the threshold increases by $1,500 for each dependent child after the first.
What counts as "income for MLS purposes"?
It's more than just taxable income. It can also include:
- Reportable fringe benefits
- Reportable super contributions (e.g. salary sacrifice)
- Net investment losses
- Net foreign income
So even if your taxable income is below the threshold, your total income for MLS purposes might push you into the surcharge zone.
What is "appropriate" private hospital cover?
To avoid the MLS, you need private hospital cover (not extras-only) that:
- Covers hospital treatment, and
- Has an excess no greater than $750 for singles or $1,500 for couples/families
Basic hospital cover often qualifies — and many Australians take it out not for medical use, but to avoid the tax.
Example: how much could you save?
Say you're a single professional earning $120,000 with no private hospital cover. You'd be charged 1.25% MLS — about $1,500 in extra tax. Take out basic hospital cover for around $1,200 a year and you save roughly $300 — plus you gain private hospital access.
What to do before 30 June
- Check your income for MLS purposes (not just taxable income)
- If you're over the threshold, compare basic hospital cover options
- Make sure the excess is compliant ($750 / $1,500)
- Decide whether private health insurance is worth it for your situation
The Medicare Levy Surcharge isn't just a penalty — it's a prompt to review your strategy. For many Australians, even a minimal level of private hospital cover can save money and add control over healthcare choices.
Frequently asked questions
What income is used for the Medicare Levy Surcharge?
Income for MLS purposes is broader than taxable income. It includes reportable fringe benefits, reportable super contributions (such as salary sacrifice), net investment losses and net foreign income. So you can be below the threshold on taxable income but still liable based on total income for MLS purposes.
Does extras-only health cover help me avoid the surcharge?
No. To avoid the MLS you need an appropriate level of private hospital cover, with an excess no greater than $750 for singles or $1,500 for couples and families. Extras-only policies do not count.