Every Australian contributes to Medicare through the standard levy, which is set at 2% of taxable income. This helps fund the public health system. However, many higher-income earners are surprised when they discover an extra charge on their tax return—the Medicare Levy Surcharge (MLS). For those earning above specific thresholds, this additional tax applies unless they hold an eligible private hospital policy.
If you maintain private hospital cover for even part of the financial year, you may reduce or completely avoid the surcharge for those days. Your insurer will provide a tax statement at the end of the year, making it easier to prove your coverage.
What is the Medicare Levy Surcharge?
The MLS is a tax aimed at Australians who earn above a set income and do not hold hospital cover. Rates range from 1% to 1.5% of your taxable income, depending on your earnings. Unlike the standard Medicare levy, which applies to all taxpayers, the MLS targets high-income earners to encourage private hospital membership. By doing so, the government aims to ease pressure on the public system, since more people will have the option to seek treatment in private facilities.
Income thresholds for 2025–2026
For the 2025–26 financial year, here are the income brackets and corresponding surcharge rates:
- Singles:
- $101,000 or less: No surcharge
- $101,001–$118,000: 1%
- $118,001–$158,000: 1.25%
- $158,001 and above: 1.5%
- Couples/Families:
- $202,000 or less: No surcharge
- $202,001–$236,000: 1%
- $236,001–$316,000: 1.25%
- $316,001 and above: 1.5%
For families, the threshold increases by $1,500 for each dependent child after the first.
Why private hospital cover matters
Holding private hospital insurance ensures that every day you’re covered, you avoid the MLS for that period. If you only had cover for part of the year, the surcharge will apply proportionally for the uncovered days. Beyond tax savings, many Australians choose private cover to skip long public waiting lists, choose their own doctor, and access private rooms when admitted to hospital.
Government rebates on private health insurance
In addition to avoiding the MLS, Australians may benefit from a government rebate that reduces the cost of private health insurance premiums. The rebate is means-tested, meaning the percentage you’re entitled to depends on your income and age. You can either claim the rebate directly through reduced premiums or as a lump sum at tax time.
Here are the 2025–26 rebate rates:
- Under 65 years:
- Base tier: 24.288%
- Tier 1: 16.192%
- Tier 2: 8.095%
- Tier 3: 0%
- Aged 65–69 years:
- Base tier: 28.337%
- Tier 1: 20.240%
- Tier 2: 12.143%
- Tier 3: 0%
- Aged 70 and above:
- Base tier: 32.385%
- Tier 1: 24.288%
- Tier 2: 16.192%
- Tier 3: 0%
These rebates help older Australians, particularly retirees, afford hospital cover when they may need it most.
Things to keep in mind
- The MLS only applies if your income exceeds the threshold and you don’t have private hospital cover.
- If your income is below the threshold, you won’t pay the surcharge, though you may still want private cover for personal or medical reasons.
- Rebates and surcharges are both based on your taxable income. If you’re unsure which tier you fall into, it’s best to seek advice from an accountant or financial advisor.
- Couples and families are assessed on combined income, and de facto relationships are treated the same as married couples for tax purposes.
Final thoughts
Private hospital cover can save high-income earners from paying thousands in surcharges, while also offering faster access to medical treatment. On top of that, the government rebate reduces the real cost of maintaining cover, especially for older Australians.
For those earning above the MLS threshold, private hospital insurance is more than just a tax-saving tool—it can provide peace of mind and real healthcare benefits when you need them most.
