Quick answer: If your income for Medicare levy surcharge purposes is above $105,000 as a single — or $210,000 as a couple or family — in 2026-27 and you don’t hold appropriate private hospital cover, the ATO tacks on an extra 1% to 1.5% tax. It’s charged on top of your normal income tax and the 2% Medicare levy. And nobody withholds it from your pay — it lands at tax time, which is why so many people first meet the surcharge as an unpleasant surprise.
This guide breaks down the 2026-27 thresholds and rates, the income definition that catches people out, and — with real worked examples — the maths of whether it’s cheaper to just buy hospital cover.
The two Medicare taxes everyone mixes up
First, the distinction that confuses almost everyone:
- The Medicare levy is 2% of your taxable income. Most Australian taxpayers pay it. It helps fund Medicare.
- The Medicare levy surcharge (MLS) is a separate extra charge of 1%, 1.25% or 1.5%. You only pay it if your income is above the threshold and you (and your dependants, if any) don’t have an appropriate level of private hospital cover.
They stack. A high earner without hospital cover pays their income tax, plus the 2% levy, plus up to 1.5% surcharge. The surcharge was designed as a nudge: the government would rather you take out private hospital cover than pay the extra tax.
2026-27 thresholds and rates for singles
These are the current ATO figures for 2026-27 (indexed up from 2025-26, so make sure any table you’re reading is labelled for this financial year):
| Tier | Income for MLS purposes (single) | Surcharge rate |
|---|---|---|
| Base | $105,000 or less | 0% |
| Tier 1 | $105,001 – $123,000 | 1% |
| Tier 2 | $123,001 – $164,000 | 1.25% |
| Tier 3 | $164,001 or more | 1.5% |
Source: ATO — Medicare levy surcharge income thresholds and rates
Couple and family thresholds
Couples and families are tested on combined income against a separate table:
| Tier | Income for MLS purposes (family) | Surcharge rate |
|---|---|---|
| Base | $210,000 or less | 0% |
| Tier 1 | $210,001 – $246,000 | 1% |
| Tier 2 | $246,001 – $328,000 | 1.25% |
| Tier 3 | $328,001 or more | 1.5% |
For families, the threshold rises by $1,500 for each MLS dependant child after the first. So a family with three kids gets a threshold of $210,000 + (2 × $1,500) = $213,000 at the base tier. It doesn’t sound like much, but near a boundary it can be the difference between paying nothing and paying 1%.
It’s not your salary that decides — it’s “income for MLS purposes”
Here’s the trap that generates most of the angry forum threads. The ATO doesn’t test your salary. It tests your income for surcharge purposes, which is deliberately broader:
- Your taxable income, plus
- Reportable fringe benefits (that company car, the laptop, the novated lease), plus
- Net investment losses — yes, losses get added back. Your negatively geared rental property doesn’t lower your MLS income; it increases it, plus
- Reportable super contributions — salary-sacrificed super and deductible personal contributions are added back, plus
- Certain trust distributions and exempt foreign employment income.
The ATO’s own example makes it concrete. Tom, 35, single, no dependants, no hospital cover. Taxable income $90,000 — safely under the threshold, you’d think. But he also has $27,000 in reportable fringe benefits. His income for MLS purposes is $90,000 + $27,000 = $117,000, which lands him in Tier 1. Surcharge: 1% × $117,000 = $1,170.
This is the classic “my salary is under $105k, why did I get a surcharge bill?” story. Salary-sacrifice arrangements, company cars and negatively geared investments are the three hidden add-backs that quietly push people over the line.
What the surcharge is actually calculated on
One technical detail worth knowing: the broader income figure sets your tier, but the surcharge itself is levied on your taxable income plus reportable fringe benefits, multiplied by the tier rate — and then pro-rated for the number of days you went without appropriate cover. So:
MLS = (taxable income + reportable fringe benefits) × tier rate × (days without cover ÷ 365)
Worked examples with 2026-27 numbers
Example 1: The salary-sacrifice surprise
Priya earns $130,000 and salary-sacrifices $10,000 into super. Her taxable income is $120,000 — but her income for MLS purposes is $120,000 + $10,000 (reportable super) = $130,000, Tier 2 (1.25%). With no hospital cover for the full year, her surcharge is 1.25% × $120,000 = $1,500. The super contribution she made to save tax has simultaneously pushed her into the surcharge.
Example 2: The couple who thought they were safe
Mark earns $95,000 and Jess earns $80,000. Neither salary is near $105,000 — but couples are tested on combined income against the family table. Combined: $175,000, which is under the $210,000 family base tier. No surcharge for either of them, even without cover. But if Mark earned $125,000 and Jess $105,000, their combined $230,000 would put the household in family Tier 1 — and each of them would pay 1% on their own taxable income at that tier rate.
Example 3: The family with three kids
A couple with three children has a combined income for MLS purposes of $220,000. Their family threshold is $210,000 + $3,000 (two extra children × $1,500) = $213,000. The extra $1,500-per-child bump wasn’t enough — $220,000 exceeds $213,000, so they’re in family Tier 1 at 1%.
Example 4: The mid-year buyer
Daniel earns $120,000 (Tier 1, 1%) and buys hospital cover on 1 January 2027, leaving roughly 181 days uncovered. His surcharge isn’t wiped out — it’s pro-rated: 1% × $120,000 × (181 ÷ 365) ≈ $596. Buying cover in January halves the bill; it doesn’t erase it. The same pro-rating applies if you suspend your cover for travel — suspended days count as uncovered days, and your insurer’s annual tax statement shows exactly how many.
Want to check where you sit? Run your numbers through our income tax calculator and compare your total income picture against the thresholds above. (If you’re also salary-sacrificing into super, our salary sacrifice guide walks through how those contributions affect your tax position.)
What counts as “appropriate” hospital cover
Not all private health insurance gets you off the hook. The bar is specific:
- Hospital cover, not extras. Extras-only (dental, physio, optical) gives you zero MLS protection. It must be hospital cover with a registered Australian health insurer.
- Excess limits: no more than $750 excess for singles, $1,500 for couples and families.
- Everyone covered: for a family over the threshold, you, your partner and all dependants (children under 21, or full-time students under 25) must be covered. One uncovered person triggers the surcharge.
- Overseas visitor and student cover doesn’t count, and neither do policies with non-registered insurers.
Source: privatehealth.gov.au — Medicare levy surcharge
The maths question: pay the surcharge or buy cover?
This is the calculation nobody’s insurer will do honestly for you. Take a single on $110,000 with no cover: Tier 1, 1% × $110,000 = $1,100 per year in surcharge — money that buys you nothing. If a basic hospital-only policy with a $750 excess costs less than that per year, the policy wins on pure maths and you get hospital cover into the bargain.
At Tier 2 ($140,000 single), the surcharge is 1.25% × $140,000 = $1,750. At Tier 3 ($170,000), it’s 1.5% × $170,000 = $2,550. The higher your income, the more the maths favours cover — and at Tier 3 you also lose the private health insurance rebate entirely (see below), so the gap widens further.
The counter-argument you’ll see on forums like Whirlpool is the “junk policy” objection: a cheap basic policy with heavy restrictions may never actually be useful if you’re hospitalised. That’s a fair criticism — but from a pure tax-minimisation standpoint, the comparison is surcharge dollars versus premium dollars. Get actual quotes, check the excess and restrictions, and run the comparison against your own surcharge figure rather than taking anyone’s word for it.
The rebate is moving in the opposite direction
The same income tiers also control the private health insurance rebate — the government contribution that reduces your premiums. For 2026-27 (rates effective 1 July 2026 to 31 March 2027), the rebate percentages are:
| Oldest person on the policy | Base tier | Tier 1 | Tier 2 | Tier 3 |
|---|---|---|---|---|
| Under 65 | 24.118% | 16.079% | 8.038% | 0% |
| 65–69 | 28.139% | 20.098% | 12.058% | 0% |
| 70+ | 32.158% | 24.118% | 16.079% | 0% |
Notice the double hit at the top: in Tier 3 you pay the maximum 1.5% surcharge and get a 0% rebate if you do buy cover. The tiers pull in opposite directions by design — the system rewards lower earners who take cover and penalises higher earners who don’t.
2026-27 news to watch: the 2026 Federal Budget included a proposal to remove the higher age-based rebate tiers — everyone would receive the under-65 rate. The Bill is before parliament, and if passed it would take effect after 31 March 2027, with new rates published in March 2027. It’s not law yet at the time of writing, so treat the table above as current and the change as pending.
5 mistakes that trigger surprise surcharge bills
- Thinking extras-only cover counts. It doesn’t. Only hospital cover with a registered insurer, within the excess limits, avoids the surcharge.
- Salary-sacrificing into super and forgetting the add-back. Concessional super contributions are added back to your MLS income — the tax saving on one front can create a liability on another. Our salary sacrifice guide has the full numbers.
- The company car. Reportable fringe benefits are the single most common reason people under the salary threshold get a surcharge bill. A $27,000 car benefit on a $90,000 salary is a $1,170 surprise.
- Negative gearing working against you. Rental losses get added back for MLS purposes. The strategy that reduces your taxable income increases your surcharge income — worth factoring into any overall 2026-27 tax plan.
- Buying cover late or suspending it. The surcharge is pro-rated per uncovered day. A January purchase or a travel suspension leaves a partial-year liability behind.
Before 30 June: three quick checks
- Check your position now, not at tax time. Employers don’t withhold the surcharge — it arrives with your assessment as a smaller refund or a bill. Research suggests nearly a third of Australians who received a pay rise were pushed past an MLS threshold without realising.
- Read your insurer’s tax statement. It lists your exact days without appropriate cover — that’s the pro-rata figure the ATO will use.
- Compare cover versus surcharge in dollars. Get a quote for basic hospital-only cover with a $750 excess and set it against your surcharge figure from the examples above. At Tier 2 and above, cover usually wins; at Tier 1, it’s close enough that the decision deserves real quotes rather than guesswork.
Frequently asked questions
Is the surcharge on top of the Medicare levy?
Yes. The 2% Medicare levy applies to most taxpayers regardless. The surcharge is an additional 1%–1.5% for above-threshold earners without appropriate hospital cover. A Tier 2 single without cover effectively pays 3.25% in Medicare-related charges on top of income tax.
Does extras cover avoid the surcharge?
No. Extras-only policies (dental, optical, physio) provide zero MLS protection. You need hospital cover with a registered Australian insurer and an excess within the limits ($750 single / $1,500 family).
My salary is under $105,000 — why did I get a surcharge bill?
Because the test uses “income for MLS purposes”, not salary. Reportable fringe benefits, salary-sacrificed super and added-back investment losses can all push you over the threshold even when your payslip says otherwise.
We’re a couple — whose income counts?
Your combined income is tested against the family thresholds, and each partner pays the surcharge at the family tier rate on their own taxable income plus fringe benefits. If one partner lacks appropriate cover, the surcharge applies.
I had cover but suspended it while travelling. Does that count?
Yes. Suspended days are uncovered days, and the surcharge is pro-rated accordingly. Check your insurer’s annual tax statement for the exact day count.
Will a cheap basic policy really avoid the surcharge?
Yes — provided it’s hospital cover (not extras-only) with a registered insurer and an excess within the limits. The “junk policy” debate is about whether the cover is useful if you’re hospitalised, which is a separate question from whether it avoids the surcharge.
The Medicare levy surcharge is one of the few Australian taxes you can legally reduce to zero with a single purchase decision. The trick is making that decision before 30 June with real 2026-27 numbers — not discovering the bill when your tax assessment arrives. Check your income for surcharge purposes, get a hospital-cover quote, and do the comparison in dollars. At most income levels above the thresholds, the maths speaks for itself.
