Medicare Levy Surcharge 2026–27: thresholds, rates and what it costs you

Who has to pay the Medicare Levy Surcharge in 2026–27?

You pay the surcharge for any day in the financial year when two things were true at once: your income for MLS purposes was above the threshold, and you did not hold an eligible hospital policy.

The thresholds moved on 1 July 2026. Singles went from $101,000 to $105,000; families from $202,000 to $210,000. If your income sat just under the old line last year and you have had a pay rise since, you may still be under — check the new figure before you assume anything.

“Family” here means you had a spouse on 30 June, or a dependent child. It is not about whose name is on the policy. A couple is tested on their combined income, and the family threshold rises by $1,500 for each dependent child after the first. If you separated during the year and were single on 30 June, the single threshold applies to you for the whole year.

What are the MLS thresholds and rates for 2026–27?

The Australian Taxation Office sets three surcharge tiers above a base line. For 2026–27 the singles lines fall at $105,000, $123,000 and $164,000, and the family lines at $210,000, $246,000 and $328,000. Your tier sets the rate — 1%, 1.25% or 1.5% — that you pay if you hold no eligible hospital cover. The same tiers decide how much private health insurance rebate you get when you do hold cover, which is why the two are worth reading together.

The rate is charged on your whole taxable income plus reportable fringe benefits, not just the part above the threshold. Crossing a tier by one dollar costs you the full step up.

For comparison, these were the 2025–26 figures, which still apply to the return you may be lodging now:

What does the surcharge actually cost?

Round numbers make the decision obvious. These are full-year figures for someone with no hospital cover at any point in 2026–27, whose income is all salary — no salary sacrifice, fringe benefits or investment losses.

To work out your own figure, find your tier in the table above and multiply your taxable income plus any reportable fringe benefits by that rate. The surcharge sits on top of the 2% Medicare levy, which you pay either way. For a couple, combined income sets the tier and each partner pays that rate on their own income, so the family rows show the total for the household.

The number that catches people is the step at $123,001 for singles. Earn $123,000 and the surcharge is $1,230. Earn $124,000 and it is $1,550 — an extra $320 for an extra $1,000 of income.

Which policies actually exempt you?

Three conditions, all of which must hold:

1. It is a hospital policy. Extras-only cover never exempts you, whatever it costs.
2. It is issued by a registered Australian health fund. Overseas visitor cover (OVHC) generally does not count for Australian residents.
3. The excess is no more than $750 for a single policy, or $1,500 for a couple or family policy. This limit has been in place since 1 April 2019 and it is the one people get wrong — a $1,000-excess singles policy is a perfectly good policy that does not exempt you from the surcharge.

Tier does not matter. A Basic hospital policy that meets those three conditions exempts you exactly as well as a Gold one.

Why were you charged the MLS even though you had cover?

Every year people open a tax assessment, find the surcharge on it and are sure it is a mistake because they pay for health insurance. It usually is not. These are the reasons, in rough order of how often they come up, all drawn from the PrivateHealth.gov.au rules:

• The policy was extras only. Dental, optical and physio cover do nothing for the surcharge.
• The excess was too high. A hospital policy with an excess above $750 for a single, or $1,500 for a couple or family, does not count.
• You suspended the policy. Pausing payments while you travel overseas means you were not covered on those days, and you pay the surcharge for them.
• There was a gap. The surcharge is charged day by day, so the weeks between leaving one fund and joining another count against you.
• Your spouse or a dependent child was not covered. The surcharge covers you and your dependants, including your spouse, so a singles policy for you alone may not be enough.

Is cover cheaper than the surcharge?

Sometimes. This is the calculation the comparison industry usually skips, so here it is honestly — on a stated example rather than an average, because Basic hospital premiums vary by state, age and fund, and you can check real ones on PrivateHealth.gov.au.

Take a compliant Basic hospital policy with a $750 excess and a list price of $1,500 a year for a single under 65, with no Lifetime Health Cover loading. After the 2026–27 rebate for each tier, it costs $1,138 at base tier, $1,259 in tier 1, $1,379 in tier 2 and the full $1,500 in tier 3. Premiums rose an average of 4.41% on 1 April 2026 — from 1.98% at GMHBA to 5.98% at AIA — so last year’s comparison is out of date.

Against that:

• At $110,000 the surcharge is $1,100 and this policy costs $1,259. The surcharge is $159 cheaper. Buy cover because you want cover, not for the tax.
• At $130,000 the surcharge is $1,625 and the policy costs $1,379. Cover is $246 cheaper, and you end up holding a policy rather than a receipt.
• At $180,000 the surcharge is $2,700 and the policy costs $1,500. Cover wins by $1,200, with room for a policy worth using.

On a $1,500 policy, the break-even for a single in 2026–27 sits at the $123,000 tier step. A cheaper policy moves it lower, a dearer one — or a Lifetime Health Cover loading — moves it higher.

If you carry a loading, the sum changes more than most people expect, because the rebate does not apply to the loading. The worked example on our rebate guide runs the surcharge, the rebate and a 12% loading together for one person. To see what a compliant policy costs for your age and state, compare cover.

What counts as income for MLS purposes?

This is broader than taxable income, and it is where most surprises come from. To decide your tier, the ATO starts with your taxable income and adds back:

• reportable fringe benefits
• reportable employer superannuation contributions, including salary sacrifice
• net financial investment losses
• net rental property losses, so negative gearing does not lower your MLS position
• certain exempt foreign employment income

A salary of $98,000 with $12,000 of salary-sacrificed super is $110,000 for MLS purposes. On paper you are under the threshold; for the surcharge you are in tier 1. The 1% is then charged on your $98,000 of taxable income, so the bill is $980 rather than $1,100 — the add-backs decide whether you pay, not how much of your income is charged.

What if you only had cover for part of the year?

The surcharge is worked out day by day. If you held eligible hospital cover from 12 October 2026 to the end of the financial year, you pay the surcharge on the 103 days before it started, not on the whole year.

For a single on $130,000 that is 103 ÷ 365 × $1,625, or about $459. Worth knowing if you are deciding whether to start cover now or on 1 July — starting now costs you premiums but stops the meter.