Medicare Levy Surcharge Guide 2025: Thresholds & How to Avoid It
IntuitiveCalc Team
Financial Content Specialist
Higher income earners without private health insurance pay extra tax. Here's how the Medicare Levy Surcharge works and whether private health is worth it.
What is the Medicare Levy Surcharge?
The Medicare Levy Surcharge (MLS) is an additional tax of 1-1.5% on taxable income for higher earners who don't have appropriate private hospital cover. It's separate from the standard 2% Medicare Levy, which all taxpayers pay.
Medicare Levy vs. Medicare Levy Surcharge
Medicare Levy (2%): Everyone pays this to fund public healthcare
Medicare Levy Surcharge (1-1.5%): Additional tax on high earners without private hospital cover
MLS Income Thresholds 2024-25
The MLS applies if your income exceeds the threshold and you don't have appropriate private hospital cover. Thresholds differ for singles and families.
| MLS Rate | Singles | Families |
|---|---|---|
| 0% (No MLS) | $93,000 or below | $186,000 or below |
| 1% | $93,001 - $108,000 | $186,001 - $216,000 |
| 1.25% | $108,001 - $144,000 | $216,001 - $288,000 |
| 1.5% | $144,001+ | $288,001+ |
Note: Family threshold increases by $1,500 for each dependent child after the first.
What Income Counts for MLS?
The MLS uses your "income for MLS purposes," which is broader than taxable income:
- Taxable income
- Reportable fringe benefits
- Reportable super contributions (salary sacrifice)
- Net investment losses (negative gearing is added back)
- Family trust distributions
Negative Gearing Warning
Investment property losses don't reduce your income for MLS purposes. If your taxable income is $85,000 but you have $10,000 in investment losses, your MLS income is $95,000 – above the threshold!
How Much Does the MLS Cost?
Let's calculate the actual cost of the MLS at different income levels:
| Income | MLS Rate | Annual MLS Cost | Monthly Cost |
|---|---|---|---|
| $95,000 | 1% | $950 | $79 |
| $110,000 | 1.25% | $1,375 | $115 |
| $120,000 | 1.25% | $1,500 | $125 |
| $150,000 | 1.5% | $2,250 | $188 |
| $200,000 | 1.5% | $3,000 | $250 |
How to Avoid the MLS
The only way to avoid the MLS is to take out private hospital cover with a complying health insurer. The policy must:
- Be with a registered Australian health insurer
- Be private hospital cover (extras-only policies don't count)
- Have an excess of $750 or less (singles) / $1,500 or less (families)
- Cover you for the full financial year
Common Mistakes
- Extras-only cover: Doesn't avoid MLS – you need hospital cover
- Excess too high: Policies with excess above $750/$1,500 don't qualify
- Overseas cover: International health insurance doesn't count
- Gaps in cover: You pay MLS for days not covered
Should You Get Private Health Insurance?
The decision depends on comparing the cost of private health insurance against the MLS you'd pay without it.
The Breakeven Calculation
Example: Single Earner on $120,000
When Private Health Makes Sense
Get Private Health If:
- PHI premium is less than MLS cost (after rebate)
- You value choice of doctor/hospital
- You want to skip public wait lists
- You're approaching 31 (LHC loading starts)
- You want extras cover too (dental, optical)
Skip Private Health If:
- Income is below MLS threshold
- PHI premium > MLS cost
- You're happy with public system
- You're young and very healthy
- You'd rather invest the difference
Private Health Insurance Rebate
The government provides a rebate to offset the cost of private health insurance. The rebate percentage depends on your age and income.
| Income (Single) | Under 65 | 65-69 | 70+ |
|---|---|---|---|
| $93,000 or less | 24.608% | 28.710% | 32.812% |
| $93,001 - $108,000 | 16.405% | 20.507% | 24.608% |
| $108,001 - $144,000 | 8.202% | 12.303% | 16.405% |
| $144,001+ | 0% | 0% | 0% |
Lifetime Health Cover (LHC) Loading
If you don't take out private hospital cover by July 1 after your 31st birthday, you'll pay a 2% loading on premiums for every year you delay (up to 70% maximum). This loading applies for 10 years.
LHC Loading Example
Taking out hospital cover at age 40 (9 years late):
LHC Loading: 2% × 9 = 18%
If base premium is $1,500/year, you'll pay: $1,770/year
Extra cost over 10 years: $2,700
Strategies to Minimize MLS
1. Get Basic Hospital Cover
The cheapest hospital policies that avoid MLS often cost less than the surcharge itself. Look for:
- Bronze or Basic hospital tiers
- Maximum allowed excess ($750 single / $1,500 family)
- Exclude services you're unlikely to use
2. Time Your Income
If you're close to the threshold, strategies like salary sacrificing into super can reduce your MLS income below the threshold (though super contributions are added back, it still reduces overall taxable income).
3. Consider Family vs. Singles Cover
The family threshold is exactly double the singles threshold. If you're a couple with combined income just over $186,000, it may be worth one partner having singles cover while the other is covered under family.
Comparing Health Insurance Options
When shopping for private health insurance to avoid MLS, focus on:
- Hospital cover only (extras are optional)
- Maximum excess ($750 single / $1,500 family)
- Basic coverage tier (don't pay for coverage you won't use)
- Price after rebate (compare net costs)
Use comparison sites like iSelect, Compare the Market, or Health.gov.au's comparison tool to find the cheapest complying policies.
FAQs
Do I need private health to use Medicare?
No. Medicare is available to all Australian residents regardless of private health status. Private health gives you access to private hospitals and shorter wait times, but public healthcare remains free.
Can I claim MLS as a tax deduction?
No. The MLS is not tax-deductible. Neither are private health insurance premiums for most individuals (though some businesses can claim).
What if I get private health mid-year?
You'll pay MLS for the days you weren't covered. The ATO calculates this proportionally. If you had cover for 200 days, you'd pay MLS on 165 days.
Does my partner's income affect my MLS?
Yes, if you're married or de facto, your combined income is used for family thresholds. You can't use individual thresholds if you have a spouse.