Two different things share the word "Medicare" on an Australian tax return, and mixing them up is one of the most common points of confusion at tax time: the Medicare levy, which almost everyone pays, and the Medicare Levy Surcharge, which only applies to higher earners without private hospital cover.
The Medicare levy: 2% of taxable income
The Medicare levy funds Australia's public healthcare system and is charged at a flat 2% of taxable income for most residents — regardless of whether you hold private health insurance. It's unrelated to how much you actually use the healthcare system.
Low-income earners pay less, or nothing
| Situation (2025-26) | Threshold |
|---|---|
| Single — no levy below | $28,011 |
| Single — reduced levy ("shade-in") up to | $35,013 |
| Family — no levy below | $47,238 |
| Family threshold increase per dependent child | +$4,338 |
Between the lower and upper single thresholds, the levy phases in gradually rather than jumping straight to the full 2% — this "shade-in" range prevents a sharp cliff right at the threshold.
The Medicare Levy Surcharge is a separate, avoidable charge
The Medicare Levy Surcharge (MLS) is an additional 1% to 1.5% charge — on top of the standard 2% levy — that applies only if your income exceeds a threshold and you don't hold appropriate private hospital cover.
| Income tier (2025-26) | Singles | Families | MLS rate |
|---|---|---|---|
| Base tier (no surcharge) | $101,000 or less | $202,000 or less | 0% |
| Tier 1 | $101,001 – $118,000 | $202,001 – $236,000 | 1.0% |
| Tier 2 | $118,001 – $158,000 | $236,001 – $316,000 | 1.25% |
| Tier 3 | $158,001+ | $316,001+ | 1.5% |
The family threshold increases by $1,500 for each dependent child after the first. Crossing a tier boundary applies that rate to your whole MLS income — unlike income tax brackets, there's no marginal step-up here.
Calculate your Medicare levy for your income.
Use the Medicare Levy Calculator →Why the surcharge exists
The MLS is designed to encourage higher-income earners to take out private hospital cover, easing demand on the public hospital system. Since the surcharge (1–1.5% of income) often costs more than a basic private hospital policy for many taxpayers in the affected income range, taking out qualifying cover is frequently the cheaper option — and comes with access to private hospital treatment as well.
What counts as "appropriate" cover
To avoid the MLS, your private health insurance must be a registered hospital cover policy — extras-only cover (dental, optical, physio) doesn't count, no matter how comprehensive it is. The policy also generally needs an excess of $750 or less for singles ($1,500 for families) to fully avoid the surcharge.
Exemptions from the standard levy
Foreign residents, certain Department of Veterans' Affairs Gold Card holders, and people not entitled to Medicare benefits can claim a full or partial exemption from the standard 2% levy — a different concept from the income-based reduction that applies to low-income residents.
Medicare levy and MLS thresholds are reviewed and indexed periodically. Confirm current figures with the ATO before making decisions about private health insurance.