Most Australians are familiar with the Medicare Levy — that 2% tax on our income that funds the public health system. But far fewer understand the second, lesser-known charge that quietly appears on many tax returns: the Medicare Levy Surcharge (MLS).
If you’re earning a decent income and don’t have the right type of private hospital cover, there’s a good chance you’re being hit with both. And in many cases, the surcharge can be legally avoided.
What Is the Medicare Levy?
The Medicare Levy is a flat 2% tax on your taxable income, paid by most Australian taxpayers. It helps fund access to GP services, public hospitals, and emergency care. It’s not optional, and it’s not linked to whether you have private insurance.
For example:
If you earn $100,000 a year, the Medicare Levy is $2,000.
People on very low incomes, some pensioners, and veterans may receive a reduction or exemption, but for most working Australians, this is a standard part of their tax bill.
What Is the Medicare Levy Surcharge?
The Medicare Levy Surcharge (MLS) is an additional tax of 1% to 1.5%, applied to higher-income earners who don’t have private hospital insurance.
It’s designed to reduce pressure on the public hospital system by encouraging those who can afford it to use the private system instead.
Income thresholds:
Singles: $93,000 or more
Families: $186,000 or more (with increases for dependent children)
Example:
A single person earning $120,000 without eligible hospital insurance would pay:
$2,400 in Medicare Levy (2%)
$1,200 in Medicare Levy Surcharge (1%)
Total: $3,600 in health-related taxes
Common Mistakes That Cost Money
Many Australians pay the surcharge without realising it. Here are three common traps:
1. Assuming extras cover is enough
Extras-only insurance (e.g. dental, physio) doesn’t qualify. You need hospital cover from a registered provider that meets minimum standards.
2. Thinking it’s optional
Private health insurance is technically optional — but once you exceed the income threshold, not having it results in extra tax.
3. Not checking excess levels
Some budget hospital policies have excesses too high to be compliant for MLS purposes. Always check with your insurer.
An Easy Way to Save
Many insurers offer basic hospital policies specifically designed to meet MLS requirements. These often cost under $1,000 a year — less than the surcharge for most people in the income brackets where the tax applies.
For example, if the surcharge costs you $1,200, but a compliant policy costs $850, you’re $350 better off — and privately covered.
The Bottom Line
The Medicare Levy is mandatory, but the Surcharge isn’t — if you plan ahead.
Reviewing your income and insurance can uncover quick wins and prevent avoidable tax surprises.
If you’re unsure whether the surcharge applies to you, ask your accountant or use the ATO’s online calculator. A five-minute check today could save you hundreds in tax next year. financialsuccess@simonwu.com.au