The extra 1% to 1.5% tax on higher earners without eligible private hospital cover.
The Medicare Levy Surcharge, usually just called the MLS, is a tax aimed at higher-income Australians who do not take out private hospital cover. It is designed to ease pressure on the public system by encouraging people who can afford it to use private hospitals when they need care. If your income is above the threshold and you do not hold appropriate cover, the MLS quietly adds 1%, 1.25% or 1.5% to your tax bill.
According to the ATO's MLS thresholds and rates page, for the 2025-26 income year the MLS starts at $101,000 for singles and $202,000 for families. The family threshold increases by $1,500 for each dependent child after the first. Above the base threshold the surcharge is split into three tiers, each with a higher rate.
| Tier | Singles base | Families base | MLS rate |
|---|---|---|---|
| Tier 1 | From $101,001 | From $202,001 | 1.0% |
| Tier 2 | Higher band | Higher band | 1.25% |
| Tier 3 | Top band | Top band | 1.5% |
The exact dollar values for Tier 2 and Tier 3 are set out in full on the ATO page above. The family threshold lifts by $1,500 for each additional dependent child after the first.
Income for MLS purposes is broader than your taxable income. It generally adds back reportable fringe benefits, reportable employer super contributions, net investment losses (including from negative gearing), and exempt foreign employment income. That is why someone with a modest taxable income can still be over the MLS threshold once those add-backs are included.
The simple answer is to hold an appropriate level of private hospital cover with an Australian registered health insurer for the entire income year. The cover must be "hospital" cover with an excess at or below the limit set by law. Extras-only policies, which cover things like dental and physio, do not exempt you from MLS. If your cover starts partway through the year, the surcharge is calculated on the days you were not covered.
Disclaimer: This article is general information, not tax or financial advice. Thresholds and rates change. Confirm the current position with the ATO and seek advice for your own circumstances.