How Medicare Levy works
The Medicare Levy funds Australia universal Medicare health system - free or low-cost public hospital + GP visits.
Medicare Levy: 2% of taxable income.
2025-26 thresholds:
| Individual | Family (no dependents) |
|---|---|
| Below $24,276: NO levy (exempt) | Below $40,939: exempt |
| $24,277 - $30,345: Reduced rate (formula-based, less than 2%) | $40,940 - $51,174: reduced |
| $30,346+: Full 2% | $51,175+: full 2% |
Family (with dependents): exempt threshold rises by $3,801 per dependent child.
| Who is exempt entirely | Medicare entitlement statement |
|---|---|
| Foreign residents (no Australian tax residency) | ATO sends if you appear to be exempt |
| Some armed forces personnel | Confirms exemption status |
| Some Medicare card non-holders | Lodge with return |
| Conscientious objectors with religious exemption |
Low-income earners: levy is reduced or zero.
Middle-income earners ($30K-$45K): full 2%.
Higher-income earners ($45K+): full 2% PLUS potentially MLS.
Medicare Levy revenue: about $20 billion/year, funds public hospital + GP system, pharmaceuticals (PBS), and some preventive health programs.
Medicare Levy Surcharge (MLS) explained
MLS applies to higher-income earners WITHOUT private hospital insurance, designed to push them toward private system + ease pressure on public hospitals.
2025-26 MLS thresholds + rates:
| Individual (single, no dependent children) | Family (married/de facto, no dependent children) | Family with dependent children |
|---|---|---|
| $0 - $97,000: 0% (no surcharge) | $0 - $194,000: 0% | Thresholds rise by $1,500 per dependent after the first |
| $97,001 - $113,000: 1.0% | $194,001 - $226,000: 1.0% | |
| $113,001 - $151,000: 1.25% | $226,001 - $302,000: 1.25% | |
| $151,001+: 1.5% | $302,001+: 1.5% |
MLS is calculated on TAXABLE INCOME plus REPORTABLE FRINGE BENEFITS plus REPORTABLE SUPER CONTRIBUTIONS.
Worked example:
Liam, single, taxable income $150,000.
No private hospital cover.
In the $113,001 - $151,000 band: 1.25% MLS.
MLS owed: $150,000 * 1.25% = $1,875.
Lisa, married couple, joint income $250,000, no kids.
No private hospital cover.
In $226,001 - $302,000 band: 1.25% MLS.
MLS owed: $250,000 * 1.25% = $3,125.
Higher earner alone:
Aria, single, $250,000 income.
$151,001+ band: 1.5% MLS.
MLS owed: $250,000 * 1.5% = $3,750.
Very high earner:
David, single, $500,000 income.
MLS: $500,000 * 1.5% = $7,500 if no private cover.
The MLS is calculated on the ENTIRE income (not just income above threshold) - common surprise.
Exception: full-year private hospital cover removes MLS entirely. Even partial year reduces MLS pro-rata.
| Income | ML | MLS (no private) | Total |
|---|---|---|---|
| $30K single | 2% | 0% | 2% |
| $80K single | 2% | 0% | 2% |
| $110K single | 2% | 1.0% | 3.0% |
| $140K single | 2% | 1.25% | 3.25% |
| $170K single | 2% | 1.5% | 3.5% |
| $80K family | 2% | 0% | 2% |
| $220K family | 2% | 1.0% | 3.0% |
| $310K family | 2% | 1.5% | 3.5% |
How private health insurance fits in
To avoid MLS, you need PRIVATE HOSPITAL COVER (NOT just extras like dental or optical).
| What counts as private hospital cover | Minimum hospital cover (cheapest tier) |
|---|---|
| Bupa Hospital cover | Bronze tier - includes 18 hospital services covered |
| HCF Hospital cover | Basic tier - includes 6 services |
| Medibank Hospital cover | All exclude high-end services unless higher tier |
| nib Hospital cover | |
| Other licensed Australian private health insurers Hospital products |
Does Extras Cover qualify? NO. Extras only (dental, optical, physio): NOT acceptable for MLS exemption.
Why private hospital exempts MLS
- Government argument: private hospital relieves public hospital wait
- Premium tax-deductible (partial): private health insurance rebate
- Rebate based on age + income tier
Worked example - $200K single:
No private cover: 1.5% MLS = $3,000/year
Bronze Hospital with $500 excess: ~$1,800/year (Bupa quotation)
Net cost of private health (after MLS saving): -$1,200 (i.e. SAVES $1,200/year)
Plus actual private hospital insurance value
$120K single:
No private cover: 1.25% MLS = $1,500/year
Bronze Hospital: ~$1,500/year
Break-even - private cover + MLS cost the same
$80K single:
No MLS triggered (under $97K)
No financial reason for private cover
Families break-even at higher incomes:
$250K family: 1.25% MLS = $3,125
Family Hospital cover: ~$3,500-$5,000
Might slightly LOSE money but get private health insurance
Most professionals find break-even between $120K-$160K single ($240K-$320K family).
Lifetime Health Cover loading
Lifetime Health Cover (LHC) loading is a permanent surcharge applied to private hospital premium if you delay taking it.
Mechanics
- Government policy encourages early uptake of private hospital insurance
- Anyone 31+ without continuous hospital cover faces 2% loading per year of delay
- Maximum loading: 70%
- Cleared after 10 years of continuous private hospital cover (resets back to 0%)
Worked example:
James, 41, never had private hospital cover.
Takes Bronze Hospital out at age 41 (10 years late).
LHC loading: 2% * 10 = 20% extra on base premium.
Base premium $1,800; with 20% loading: $2,160/year.
James keeps the cover for 10 years.
At age 51: loading is removed.
Base premium back to $1,800.
| Who is exempt from LHC | Taking it before 31 | Missing the July 1 deadline | Tactical decision |
|---|---|---|---|
| Born before July 1, 1934 (already had Medicare cover) | No LHC loading | Loading applies for the entire fiscal year if you have not held cover the full year | 28-year-old without health issues: maybe skip Hospital cover, no LHC loading yet |
| Younger than 31 (full window without loading) | Continuous coverage = future protection | Common mistake: trying to add cover in November "before the year ends" - LHC loading still applies to that whole year unless cover ran from July 1 | 31-year-old: take out Hospital cover immediately to avoid loading |
| Continuously covered from age 31 onward | Sometimes worth taking cheapest hospital cover (Bronze $600/yr) just to maintain coverage | 50-year-old never insured: definitely take out (70% loading max already accruing) | |
| Some military personnel | |||
| Recently arrived migrants (10-year exemption window upon arrival) |
LHC loading exempt for: pre-existing PHI continuity (you cancel + reinstate within 12 months), military service, residency abroad.
Common Medicare Levy mistakes
- Confused about Medicare Levy vs Medicare Levy Surcharge. ML is 2% for almost everyone; MLS is 1-1.5% extra ONLY for high earners without private hospital cover.
- Buying Extras-only cover thinking it exempts MLS. It does NOT. Must be HOSPITAL cover.
- Missing private health rebate. Government rebate up to 25% of premium (income + age based). Apply via tax return.
- Cancelling Hospital cover then re-buying. LHC loading clock resets if gap >12 months. Maintain cover.
- Cancelling in October, re-buying in December. LHC loading applies to full year because cover did not run from July 1.
- Not including reportable super + fringe benefits in MLS calc. ATO adds these back - your actual MLS may be higher than expected.
- Couples: one spouse has cover, the other does not. BOTH must be on the same policy (or each have their own); else only the covered spouse is exempt.
- Foreign student or short-term visa: paying ML when not required. Apply for exemption.
- Skipping the Medicare Levy reduction for low-income earners. Threshold at $24,276 single - check eligibility.
- Thinking private insurance also covers public hospital. It does not bypass Medicare - public hospital still available at no cost.
Run the math for your situation
Use our 🇦🇺 Australia calculator to plug in your own numbers.