Medicare Levy and MLS 2026: Thresholds, Rates and Surcharge Tiers

Every Australian tax resident pays the 2% Medicare Levy on taxable income — but higher earners without eligible private hospital cover also pay the Medicare Levy Surcharge, an extra 1.0% to 1.5% on top. For a single earner at $120,000, the combined Medicare Levy plus MLS can add over $3,600 to a tax bill. The practical decision for many first-home buyers and mortgage holders is whether to take out basic hospital cover to avoid the surcharge — a calculation where the hospital premium is often cheaper than paying MLS.

2025-26 MLS income thresholds and tiers (the most current published at July 2026):

• Single: $101,000 or below — no surcharge
• Family/couple: $202,000 or below — no surcharge (threshold increases by $1,500 for each dependent child after the first)

Singles MLS tiers based on income for MLS purposes:

• $101,000 and under: 0% (no surcharge)
• $101,001–$118,000: 1.0% surcharge
• $118,001–$158,000: 1.25% surcharge
• $158,001 and above: 1.5% surcharge

The MLS is calculated on your taxable income plus reportable fringe benefits — the same income base used for the MLS income test, not just your salary. Importantly, the surcharge is applied to your full taxable income, not just the amount above the threshold. Most taxpayers pay it through their tax return as an additional levy on top of the 2% Medicare Levy.

How much does MLS cost at different income levels?

For a single earner at $110,000: MLS tier is 1.0%, so you pay an extra $1,100 on top of the $2,200 Medicare Levy — total $3,300 in Medicare-related tax. At $130,000: MLS tier is 1.25%, adding $1,625 to the $2,600 Medicare Levy, for a total of $4,225. At $170,000: MLS tier is 1.5%, adding $2,550 to the $3,400 Medicare Levy, for a total of $5,950.

For a couple with combined income of $220,000 where neither has private hospital cover: the family threshold is $202,000, so they are over the threshold. The MLS tier depends on the highest individual income within the couple, but the surcharge percentage applies to each person’s individual taxable income. The combined annual cost can easily exceed $3,000–$4,000.

A basic single hospital cover policy in 2026 typically costs $1,200–$1,600 per year depending on the fund, age and state. At $110,000 income, the MLS costs $1,100 — making hospital cover roughly a break-even decision. At $130,000, MLS costs $1,625 — hospital cover is cheaper. At $170,000, MLS costs $2,550 — hospital cover is clearly the cheaper option by over $1,000 per year. The crossover where hospital cover becomes cheaper than MLS is around $115,000–$125,000 depending on the specific policy price.

What counts as eligible private hospital cover?

To avoid MLS, you need a complying hospital policy registered under the Private Health Insurance Act. Extras-only cover (dental, optical, physio) does not count — you must hold at least basic hospital cover. Policies with high excess or co-payment options can bring the premium down while still qualifying for the MLS exemption. If you hold hospital cover for only part of the year, you may be liable for MLS on a pro-rata basis for the days you were not covered.

Why this matters for mortgage serviceability

Lenders assess your after-tax income when calculating borrowing capacity. If you are paying $3,000–$5,000 per year in MLS because you don’t have hospital cover, that outflow reduces your serviceable income. Taking out a $1,400 basic hospital policy can improve your after-tax position by $1,600–$3,600 per year depending on your income tier — which can translate into $30,000–$70,000 of additional borrowing capacity. For a first-home buyer trying to maximise their loan amount, that can be the difference between qualifying for a property and falling short.

The decision isn’t purely financial — hospital cover provides actual healthcare benefits, including avoiding public hospital waiting lists for elective surgery. But from a borrowing-power perspective alone, the numbers usually favour taking out cover if your income is above $115,000 for singles or above $210,000 for couples.

Low-income Medicare Levy reduction and exemption

Taxpayers below certain income thresholds pay a reduced Medicare Levy or none at all. For the 2025-26 year, singles earning under $24,276 generally pay no Medicare Levy, with a phase-in range up to $30,345 where the levy is partially applied. Families and seniors have higher thresholds. These are separate from the MLS thresholds — you can be exempt from the Medicare Levy but still liable for MLS if your income is above the MLS threshold and you lack hospital cover, though in practice the Medicare Levy exemption thresholds are well below the MLS thresholds.

Information sources

All Medicare Levy and Medicare Levy Surcharge thresholds, tiers and rates in this article are drawn from Australian Taxation Office published figures for the 2025-26 income year, which is the most current MLS year as at July 2026. MLS income thresholds are typically indexed and republished annually. Private health insurance policy pricing is indicative and varies by fund, state, age and product; obtain quotes from multiple funds for your specific circumstances.

Frequently asked questions

Does extras cover count for avoiding MLS?

No. Extras cover (dental, optical, physiotherapy) does not exempt you from MLS. You must hold a complying hospital policy. Combined hospital and extras policies qualify.

What if I’m only over the MLS threshold for part of the year?

If you hold hospital cover for only part of the financial year, you may be liable for MLS on a pro-rata basis for the uncovered days. The ATO calculates this when you lodge your tax return. Taking out cover partway through the year reduces your liability proportionally.

Is the MLS threshold the same for families?

The family/couple threshold is $202,000 (plus $1,500 per dependent child after the first). The MLS tier is based on the total family income for MLS purposes. Each partner’s individual surcharge is calculated on their own taxable income at the applicable tier.

Can I avoid MLS by salary sacrificing into super?

Salary-sacrifice super contributions reduce your taxable income but are generally added back as reportable employer super contributions when calculating income for MLS purposes. The reduction in MLS may be limited. Check your specific situation with a tax professional.

Next step: maximise your borrowing power

The Medicare Levy and MLS are part of your overall tax position, which directly affects how much a lender will lend you. To see your full borrowing capacity including the impact of tax, MLS and private health insurance decisions, speak with an Arrivau licensed mortgage consultant — we respond within one business day.

General information disclaimer

This article is general information only and is not personal financial, tax, legal, health or credit advice. MLS thresholds, private health insurance pricing and tax rules can change. Arrivau Pty Ltd (ABN 81 643 901 599) provides credit assistance as an ASIC Credit Representative, CRN 530978. Consider your objectives and seek licensed advice from a registered tax agent or financial adviser before making decisions.