Medicare Levy Surcharge 2026–27: Thresholds, Rates and How to Avoid It

The tax that buys you nothing

Updated 02/10/2026. Thresholds and rates checked against the ATO for the 2025–26 and 2026–27 income years.

A single professional earning $130,000 in salary without hospital cover will hand the ATO an extra $1,625 for 2026–27. Not for faster treatment, not for a private room, not for anything. That is the Medicare levy surcharge: the only line on your notice of assessment where roughly the same money, pointed at a qualifying insurance policy instead, would have bought you an actual benefit.

Every tax season we see the same surprises: clients who did not realise they had crossed the income threshold, assumed their extras cover protected them, or did not know their spouse's income counted. With 2025–26 returns due by 31 October 2026 for people who lodge themselves, this guide covers both years: the thresholds, a calculator, who has to pay, who is exempt, and how to answer the surcharge question on your return.

What Are the Medicare Levy Surcharge Thresholds for 2026–27 and 2025–26?

Source: ATO, Medicare levy surcharge income, thresholds and rates. Family thresholds increase by $1,500 for each MLS dependent child after the first.

Which year do you need? Use the 2025–26 columns for the tax return you are lodging now. Use the 2026–27 columns for any decision about hospital cover today, because the current income year runs from 1 July 2026 to 30 June 2027.

Remember the cliff. A single person with $105,000 of income for MLS purposes in 2026–27 pays no surcharge. At $105,001, the 1% rate applies to their whole taxable income and reportable fringe benefits, not just the dollar over the line, so the bill jumps to roughly $1,050. If your income sits near a boundary, timing a deductible expense or a concessional super contribution before 30 June 2027 can matter more than it first appears, which is why the surcharge belongs in any serious tax planning conversation.

Medicare Levy Surcharge Calculator

Enter your figures for either income year. The calculator applies the ATO thresholds above, tests your income for MLS purposes against the right tier, and calculates the surcharge on your taxable income plus reportable fringe benefits for the days you were without appropriate hospital cover.

What Is the Medicare Levy Surcharge?

The surcharge exists as a policy lever. The government wants higher earners to take out private hospital insurance and ease pressure on the public system, so it makes not having cover cost real money. The ATO's Medicare levy surcharge guidance sets out when it applies and at what rates.

Who Has to Pay the Medicare Levy Surcharge?

In practice, the people who end up paying fall into a few groups we see every year:

• Single employees whose salary has crept past $101,000 (2025–26) or $105,000 (2026–27), often after a pay rise or bonus they did not connect to the surcharge.
• Couples where neither salary looks high on its own but combined family income exceeds $202,000 (2025–26) or $210,000 (2026–27).
• People whose taxable income is under the threshold but whose fringe benefits, salary-sacrificed super or rental losses push their income for MLS purposes over it.
• Families where one member, often a student child aged 21 to 24, dropped off the hospital policy.
• People who held cover for only part of the year. Liability is worked out on the days without appropriate cover, per the ATO's guidance on paying the surcharge.

For couples, the rate is set by combined family income but each person pays the surcharge on their own taxable income and reportable fringe benefits. A spouse on a modest income can still carry a surcharge set at the family rate.

What Is the Difference Between the Medicare Levy and the Medicare Levy Surcharge?

The two are confused constantly, including by people who have been paying both for years. The 2% Medicare levy is close to universal; low-income earners get a reduction or exemption, but private health insurance has no effect on it. The surcharge is the optional extra. It is the one you control.

So a single person on a $170,000 salary with no hospital cover pays both for 2026–27: $3,400 in Medicare levy plus $2,550 in surcharge, a combined $5,950. With qualifying hospital cover, the second amount disappears. You can cross-check your position with the ATO's Medicare levy calculator.

What Income Counts for Medicare Levy Surcharge Purposes?

That two-step design is where most of the surprises come from. Negative gearing reduces your taxable income, but the loss is added back when testing the threshold; a reader weighing up property investment should also see our analysis of the proposed negative gearing changes. Salary-sacrificed and personal deductible super contributions are added back too, which surprises clients using contributions as their main tax lever, including those with a self managed super fund. The full definition, including family trust distribution amounts and exempt foreign employment income, is on the ATO's thresholds page.

In our experience working with professional services clients, reportable fringe benefits are the most common blind spot. One Melbourne professional we act for had taxable income of $100,000 for 2025–26 and assumed they sat safely under the singles threshold of $101,000. A novated lease added $14,000 of reportable fringe benefits, lifting income for MLS purposes to $114,000 and triggering a 1% surcharge of $1,140. Nothing about the lease was wrong; the client simply had not been told it counted.

Who Counts as Family and Dependants for the Surcharge?

The family rules in the ATO's family and dependants guidance catch people in three ways. First, combined income: two salaries of $110,000 each make a $220,000 family, over the 2026–27 threshold, even though neither person would face the surcharge alone. Second, coverage is all or nothing: a couple where one partner holds hospital cover and the other does not can still both be liable. Third, dependants count. A 22-year-old at university full time is still a dependant, and if they are not covered by the family policy or their own, the surcharge can apply to the parents.

A spouse means anyone you live with on a genuine domestic basis as a couple, regardless of sex, not just a married partner. Biological, adopted and step children all count as dependants; foster children do not. Medical and dental families should note these rules interact with income structures we cover in how doctors are taxed in Australia, and they are a standing item in our work for doctors, dentists and health practices.

The Dollar Maths: Surcharge vs Hospital Cover

This is the comparison we recommend every client above the threshold runs, and it is the one thing the insurer-written guides on page one of Google never show plainly. The question is not whether private health insurance is good value in the abstract. The question is: given that you will pay one of these two amounts either way, which one buys you something?

Take a single consultant on a $130,000 salary in 2026–27. Without hospital cover, the surcharge is 1.25% of $130,000, which is $1,625. That $1,625 buys nothing. No cover, no extras, no waiting-list advantage, no benefit of any kind. It is simply additional tax. A basic qualifying hospital policy for a single person can cost a broadly comparable annual amount. For roughly the same outlay, the policy buys actual hospital cover, removes the surcharge entirely, and stops a second cost quietly accruing in the background.

Calculated from ATO 2026–27 MLS rates and thresholds, assuming income is salary only with no fringe benefits, investment losses or reportable super. Family figures are the combined surcharge for two uncovered spouses.

The background cost is Lifetime Health Cover loading. Under the Lifetime Health Cover rules, taking out hospital cover after the 1 July following your 31st birthday adds a 2% loading to your premium for every year of delay, up to a maximum of 70%, and the loading only clears after 10 years of continuous cover. Someone who first takes cover at 40 pays 20% more for the same policy for a decade. Delaying the decision is not free even in the years you sit under the surcharge threshold.

One important boundary: we are tax advisors, not insurance brokers. Whether a particular policy suits your health needs is a decision to make on the policy's merits, and the government's privatehealth.gov.au comparison service lets you compare every registered policy without a sales filter. Our role is the tax side: telling you exactly what the surcharge will cost you, so you can compare that number against a real quote rather than a guess.

How Do You Avoid the Medicare Levy Surcharge?

The ATO's definition of appropriate cover trips up two groups. The first holds extras-only cover for dental, optical or physiotherapy and assumes it counts. It does not; only hospital cover qualifies. The second holds hospital cover with a high excess to keep premiums down, not realising that an excess above $750 (singles) or $1,500 (couples and families) disqualifies the policy for surcharge purposes.

Timing is the other trap. The surcharge applies for each day you did not hold appropriate cover. Taking out a policy in March does not clear the year; you remain liable for the July-to-March days. If you expect to be over the threshold in 2026–27, cover needs to be in place for the whole year, and it needs to stay in place. Cancelling for a few months while travelling creates liable days and can restart Lifetime Health Cover consequences. We flag these dates alongside the lodgement calendar in our guide to key ATO due dates.

If your income is genuinely borderline, deductions and super contributions can also keep you under the threshold, but that analysis needs your full facts. A CPA accountant can model both levers together, and for business owners the answer often interacts with how you draw income from the business, which is core small business accounting territory.

Who Is Exempt From the Medicare Levy Surcharge?

The Medicare levy exemption categories, set out in the ATO's M1 instructions for 2025–26, are narrow:

• Medical: blind pensioners, and people entitled to full free medical treatment for all conditions under Defence Force arrangements or a Veterans' Affairs Gold Card.
• Foreign residents: people who were foreign residents for tax purposes, for the period they were foreign residents, provided they had no dependants or all dependants were also in an exemption category.
• Not entitled to Medicare benefits: temporary residents who hold a Medicare Entitlement Statement from Services Australia, on the same dependant condition. See the ATO's not entitled to Medicare benefits page.
• Diplomats: members of a diplomatic mission or consular post who are not Australian citizens and not ordinarily resident in Australia.

The temporary resident category catches people out most. Being on a temporary visa does not exempt you automatically. You need to apply for a Medicare Entitlement Statement from Services Australia, ideally before you lodge, so the exemption can be claimed on the return. Without it, a temporary resident on a high salary and no Australian hospital cover can be assessed for both the levy and the surcharge.

One less-known rule applies to couples. Under the ATO's M2 instructions, if you had a spouse for the whole of 2025–26 and your own income was $28,011 or less, you are not liable for the surcharge even when combined family income is over the family threshold.

What Does "Not Liable for the Medicare Levy Surcharge" Mean on Your Tax Return?

In myTax for 2025–26, the first question is whether you and all your dependants were covered by an appropriate level of private patient hospital cover from 1 July 2025 to 30 June 2026. myTax may pre-fill this answer, so check it rather than accept it. Answer yes and you also complete the private health insurance policy details. Answer no and myTax asks for the number of days you do not have to pay the surcharge. The myTax 2026 surcharge instructions walk through each case.

On the paper return, the same question is M2. Label E records whether you and all dependants, including your spouse, had appropriate cover for the whole year. If not, label A records the number of days you do not have to pay the surcharge. If you are not liable for the whole year, for example because your income was under the threshold or you were in an exemption category all year, you write 365.

Two practical points from our individual tax return work. First, the days count is about you and your whole family, so a child who was off the policy for three months can turn a clean 365 into 273. Second, if you are liable only because your spouse received a lump sum payment in arrears, the M2 instructions say you may be entitled to a tax offset of up to the surcharge amount. That is worth checking before you accept the assessment.

Key Takeaways

• The surcharge starts at $105,001 (singles) and $210,001 (families) for 2026–27, and $101,001 and $202,001 for 2025–26, at 1% to 1.5%.
• Your income for MLS purposes decides the tier: fringe benefits, reportable super and investment losses all count. The surcharge is then charged on taxable income and reportable fringe benefits.
• Only hospital cover with an excess of $750 or less (singles) or $1,500 or less (couples and families) avoids the surcharge. Extras cover does nothing.
• Every family member, including student children up to 24, must be covered or the surcharge can still apply.
• Exemptions are narrow. Temporary residents need a Medicare Entitlement Statement to claim the exemption.
• If you will pay either way, compare the two numbers: the surcharge buys nothing, while cover at a similar cost buys cover and stops Lifetime Health Cover loading accruing.

Frequently Asked Questions