When tax time rolls around, many Australians are surprised to find an additional charge on their notice of assessment called the Medicare Levy Surcharge (MLS). If your income is over a certain threshold and you don’t have private hospital cover, you might be paying more tax than you need to. This article breaks down the connection between your income, the Medicare Levy Surcharge, and private health insurance, so you can make smarter financial decisions in 2025.
What Is the Medicare Levy and the Medicare Levy Surcharge?
Australia’s Medicare system is largely funded by two separate levies:
- Medicare Levy (2%)
- Medicare Levy Surcharge (1%–1.5%)
This applies to most taxpayers and is calculated as 2% of your taxable income.
This is an extra tax for higher-income earners who don’t have an appropriate level of private hospital cover.
Who Pays the Medicare Levy Surcharge in 2025?
If your income for MLS purposes is above the threshold and you don’t hold private hospital cover, you will be charged the surcharge.
2024–25 Medicare Levy Surcharge (MLS) Thresholds and Rates
Tier | Singles | Families / Couples | 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 threshold increases by $1,500 for each MLS dependent child after the first.
What Counts as "Income for MLS Purposes"?
Your income for MLS purposes includes more than just taxable income. It may also include:
- Reportable fringe benefits
- Super contributions made via salary sacrifice
- Net investment losses
- Net foreign income
So even if your taxable income is below the MLS threshold, your total assessable income might push you into the surcharge zone.
What Is “Appropriate” Private Health Cover?
To avoid the MLS, you must have private hospital cover (not extras-only policies) 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?
Let’s say you’re a single professional earning $120,000 and don’t have private hospital cover.
- You’ll be charged 1.25% MLS, which means $1,500 in extra tax.
- But if you instead take out basic hospital cover for $1,200 per year, you save $300 — and get the added benefit of private hospital access.
Over 10 years, that’s potentially $3,000 saved, even without factoring in investment returns if you invested the difference.
What You Should Do Before 30 June 2025
- 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 limit)
- Consider whether private health insurance is worth it for you
Final Thoughts
The Medicare Levy Surcharge isn’t just a penalty — it’s an opportunity to evaluate your financial strategy. For many Australians, taking out even a minimal level of private hospital insurance can save money and provide greater control over healthcare choices.
Take Action with FinAVA
At FinAVA, we simplify complex tax rules and help Australians make better decisions around income, superannuation, and investments.
Need help calculating your MLS exposure? Want to know if private cover is worth it for your family?
We’re building the tools and guides to help you take control.
Subscribe for updates, and let AVA be your trusted guide in 2025.