What the surcharge is
The Medicare levy surcharge is a tax nudge: earn above the threshold without private patient hospital cover and you pay an extra 1% to 1.5% of your income, on top of the 2% Medicare levy everyone pays. It exists to push higher earners toward private hospital insurance. Extras-only cover (dental, optical, physio) does not count; it must be hospital cover with an excess of $750 or less for singles ($1,500 for couples and families).
2026-27 thresholds and rates
| Tier | Single | Family | Rate |
|---|---|---|---|
| No surcharge | Up to $105,000 | Up to $210,000 | 0% |
| Tier 1 | $105,001 – $123,000 | $210,001 – $246,000 | 1% |
| Tier 2 | $123,001 – $164,000 | $246,001 – $328,000 | 1.25% |
| Tier 3 | Over $164,000 | Over $328,000 | 1.5% |
The family threshold covers couples (married or de facto) on combined income, and rises by $1,500 for each MLS dependent child after the first. A cliff applies at each line: cross it by one dollar and the rate applies to your entire income, not the excess.
The maths that surprises people
Because the surcharge hits your whole income, a single person on $124,000 pays 1.25% of $124,000, which is $1,550 a year. Basic private hospital cover can cost less than that. This is the well-known quirk of the system: above roughly $123,000, cheap hospital cover often costs less than the tax it removes, which means insurance can be cash-flow positive even if you never use it.
What income counts
MLS income is broader than taxable income. It adds reportable fringe benefits, reportable (salary-sacrificed) super contributions, and net investment losses back on top. Salary sacrificing into super lowers your income tax but does not lower your MLS income, so it will not get you under the threshold. A novated lease's reportable fringe benefit amount counts too, which catches some EV lease holders by surprise.