If you’ve ever opened your tax bill and felt a shock, chances are you’ve come across the Medicare Levy Surcharge (MLS). Many Australians don’t realise they’re on the hook for this extra charge until it’s too late. The good news? Taking out the right type of hospital insurance can stop that tax penalty in its tracks.
What is the Medicare Levy Surcharge?
The MLS is an additional tax applied to higher-income earners who don’t have eligible private hospital cover. It’s separate from the standard Medicare Levy, which everyone pays to help fund public healthcare.
While the standard Medicare Levy is generally 2% of taxable income, the surcharge adds another 1% to 1.5% on top, depending on your earnings. For many people, that can mean thousands of dollars in extra tax every year.
The purpose of this surcharge is simple: to encourage those who can afford private care to take some pressure off the public system, where wait times can be long.
Who Has to Pay the MLS?
You’ll be required to pay if:
- You’re single and earn more than $101,000 a year.
- You’re part of a couple or family with a combined income over $202,000.
For families, the threshold rises by $1,500 for every dependent child after the first.
The surcharge rates are tiered:
- Tier 1: 1% of income
- Tier 2: 1.25% of income
- Tier 3: 1.5% of income
Your total income for MLS purposes includes taxable income, fringe benefits, some super contributions, and even investment losses. This means even if your base salary sits under the threshold, bonuses or extra benefits could unexpectedly push you into surcharge territory.
How the Daily Calculation Works
One detail that often catches people off guard is how the surcharge is calculated. It’s not assessed on whether you held cover for most of the year—it’s charged daily.
For example, if you earn $120,000 and go without hospital cover for 182 days, you’d fall into Tier 2 (1.25%). That works out to about $748 in extra tax for that half-year period alone. The moment you take out hospital insurance, the surcharge stops accruing from the next day forward.
What Kind of Cover Do You Need?
Not all health insurance policies exempt you from the surcharge. To qualify, you must have:
- Private hospital cover (extras-only policies don’t count).
- An excess of no more than $750 for singles or $1,500 for couples/families.
Ambulance cover or extras-only policies won’t get you off the hook, so it’s important to check the details before signing up.
Why It Pays to Act Quickly
The surcharge has nothing to do with whether you actually use the cover—it’s simply about whether you hold an eligible policy. Every day you delay, more surcharge stacks up on your tax bill. Even if you take out a policy late in the financial year, you can reduce what you’ll owe by hundreds or even thousands of dollars.
Keeping the policy active not only lowers your tax this year but also ensures you won’t face the surcharge again in the following financial year.
Final Thoughts
Many Australians only discover they owe the Medicare Levy Surcharge when lodging their tax return—by then, it’s too late. If your income is close to or above the threshold, it makes financial sense to act early. Getting hospital cover today could protect your wallet tomorrow, while also giving you access to the benefits of private healthcare if you ever need it.
