Medicare Levy Surcharge

The Medicare Levy Surcharge (MLS) is a separate, additional levy charged on taxpayers above certain income thresholds who do not hold an appropriate level of private hospital cover. It stacks on top of the 2% Medicare levy everyone else pays. The surcharge runs on a three-tier scale of 1.0%, 1.25% and 1.5%, based on your income for MLS purposes.

For 2024-25 the single thresholds started around $97,000 for tier 1, rising through about $113,000 and $151,000 for tiers 2 and 3, while the family threshold began around $194,000, with an allowance per extra child. These index over time, so check ato.gov.au for the current figures before making insurance decisions. Coverage is counted day by day: you pay the surcharge only for the days in the year you lacked hospital cover. Extras-only cover does not count; the policy must be a complying hospital product.

The ATO calculates MLS at lodgement, not through PAYG in your pay packet. First it computes your income for surcharge purposes, which is taxable income plus reportable fringe benefits, total net investment losses and reportable super contributions. Then it checks your complying hospital cover for each day of the year. If both conditions trip, the tier percentage multiplies across the MLS income and shows up as a payable line on your notice of assessment. Any day with complying hospital cover in place is exempt, so a mid-year policy reduces the assessment proportionally.

The practical ratio is that a hospital policy on a single income around $100,000 costs about the same as one tier of surcharge. Tier 1 at 1% on $100,000 is $1,000 per year; a basic hospital product for a single routinely lands between $1,000 and $1,400. The policy choice is whether the money becomes insurance, day-counted auditing, or just a larger tax bill. The whole computation is invisible until the notice of assessment, which is why it surprises people every July. Private health insurance rebate tiers also mirror the same income thresholds, so capping up both levers at once is the intended design.

MLS is the tax system's polite way of saying that above a certain income, you are paying for a hospital bed either way. The surcharge starts roughly where the average full-time salary lives now, so a huge share of Australian professionals trip the threshold without ever intending to. Anyone whose MLS income crosses $97,000 and who lacks hospital cover is effectively choosing an extra 1% tax on their entire income, and the tier percentage applies to the whole amount, not just the slice over the line.

A colleague named Brent (yes, that Brent) skipped hospital cover for three years on the logic that he was unlikely to need it. What he actually did was pay $3,100 in surcharges on a $103,000 income and receive no insurance in return. A $1,300-a-year entry-level hospital policy would have kept the surcharge line at zero and covered his knee reconstruction waiting list into the bargain. The math is barely arguable at tier 1.

Price the two options against your actual income with the medicare levy calculator and check thresholds at ato.gov.au before every policy renewal. Modelling both the rebate tier and the surcharge tier together beats deciding in isolation.