In short
The Medicare levy is 2% of taxable income, with reductions for low-income earners (for 2025–26, a single person not entitled to SAPTO pays no levy on taxable income of $28,011 or less). The Medicare levy surcharge is a separate charge of 1%, 1.25% or 1.5% for people without an appropriate level of private hospital cover whose income for surcharge purposes is above $105,000 (singles) or $210,000 (families) in 2026–27.
- Medicare levy
- 2% of taxable income
- No levy (single, 2025–26)
- Taxable income of $28,011 or less (no SAPTO)
- Surcharge starts (2026–27)
- Above $105,000 single, $210,000 family
- Surcharge rates
- 1%, 1.25% or 1.5% (2026–27)
The Medicare levy: 2% of taxable income
The Medicare levy helps pay for Australia's public health system. It is charged at 2% of your taxable income, on top of income tax, and is worked out by the ATO when your tax return is assessed. The income tax rates do not include it.
The ATO's own example: a single person with $76,000 of income and $1,000 of deductions has a taxable income of $75,000, so the levy is $75,000 × 2% = $1,500.
For most employees the levy is not a surprise at tax time, because the PAYG amount an employer withholds from wages generally includes an allowance for it. The surcharge discussed below is different: the ATO says it is not covered by tax withheld from pay.
The Medicare levy and the Medicare levy surcharge are two separate charges. Some people pay one, some pay both, and some pay neither.
Low-income reductions and exemptions
People on lower incomes pay a reduced levy or none at all. If your taxable income is at or below the lower threshold, no levy is payable. Between the lower and upper thresholds, the levy is phased in. The ATO applies the reduction automatically when it processes your return.
At 9 July 2026, the ATO has published these thresholds for the 2025–26 income year only. The thresholds for 2026–27 have not yet been published on the ATO low-income reduction page, so check there before relying on any figure for the current year.
| Category | No levy at or below | Reduced levy up to |
|---|---|---|
| Entitled to the seniors and pensioners tax offset (SAPTO) | $44,268 | $55,335 |
| All other taxpayers | $28,011 | $35,013 |
Families get a separate test based on family taxable income (your income plus your spouse's, or your own if you are a sole parent). For 2025–26, the lower family threshold is $47,238 ($61,623 with SAPTO), rising by $4,338 for each dependent child. The upper family threshold is $59,047 ($77,028 with SAPTO), rising by $5,423 for each dependent child.
Separately from these reductions, some people qualify for an exemption from the levy. The ATO groups exemptions under three broad grounds: certain medical conditions, being a foreign resident for tax purposes, and not being entitled to Medicare benefits. Eligibility for an exemption is considered separately from eligibility for a reduction.
The Medicare levy surcharge: who pays it
The Medicare levy surcharge (MLS) is an extra charge on top of the Medicare levy. Under the ATO's rules, it can apply when both of these are true:
- you, your spouse and all your dependent children do not hold an appropriate level of private patient hospital cover, and
- your income for MLS purposes is above the base threshold for your situation.
An appropriate level of cover is private patient hospital cover from a registered Australian health insurer. The ATO currently states the excess must be $750 or less for singles and $1,500 or less for couples and families. Extras-only cover (dental, optical, physio and similar), travel insurance and cover from an overseas fund do not count.
The number of days you held appropriate cover matters. Your insurer's private health insurance statement shows how many days your policy provided appropriate hospital cover, and that figure goes into the MLS question in your return. Cancelling hospital cover while travelling overseas can leave you liable for the surcharge for that period.
Medicare levy surcharge thresholds and rates for 2026–27
The ATO has published the surcharge tiers for the 2026–27 income year (1 July 2026 to 30 June 2027). The family threshold rises by $1,500 for each MLS dependent child after the first.
| Tier | Single | Family | Surcharge rate |
|---|---|---|---|
| Base tier | $105,000 or less | $210,000 or less | 0% |
| Tier 1 | $105,001 to $123,000 | $210,001 to $246,000 | 1% |
| Tier 2 | $123,001 to $164,000 | $246,001 to $328,000 | 1.25% |
| Tier 3 | $164,001 or more | $328,001 or more | 1.5% |
For returns covering 2025–26, the lower thresholds apply: base tier up to $101,000 single or $202,000 family; Tier 1 to $118,000 or $236,000; Tier 2 to $158,000 or $316,000; Tier 3 above that. The rates were the same 1%, 1.25% and 1.5%.
Income for MLS purposes is not just taxable income
The tier you fall into is decided by a wider measure of income than taxable income. If you have a spouse, your combined figure is used. According to the ATO, income for MLS purposes adds up:
- taxable income (including any amount on which family trust distribution tax was paid, but excluding an assessable first home super saver released amount)
- reportable fringe benefits
- total net investment losses, which include net financial investment losses and net rental property losses
- reportable super contributions, meaning reportable employer super contributions plus deductible personal super contributions
- for a spouse, certain trust income on which the trustee paid tax and which is not in their taxable income
- exempt foreign employment income, where taxable income is $1 or more
This is why reportable fringe benefits, losses on a negatively geared rental property or reportable super contributions can push someone into a surcharge tier even when their taxable income is under the threshold. Once the rate is known, it is charged on taxable income, reportable fringe benefits and any amount subject to family trust distribution tax.
The ATO's 2026–27 example: a single person with no hospital cover has taxable income of $90,000 and reportable fringe benefits of $27,000. Their income for MLS purposes is $117,000, which falls in Tier 1, so the surcharge is $117,000 × 1% = $1,170, on top of the 2% Medicare levy.
Couples have a further rule. For 2025–26, if you had a spouse for the whole year and your own income for MLS purposes was $27,222 or less, you do not pay the surcharge even if the family income is over the threshold. If you started or ended a relationship during the year, the single and family thresholds can each apply for the days they relate to.
Private health insurance rebate tiers for 2026–27
The private health insurance rebate is a government contribution towards premiums. It is income tested using the same income for surcharge purposes and the same tiers as the MLS, and the rate also depends on the age of the oldest person on the policy. Your family status on 30 June decides whether single or family thresholds apply.
| Oldest person on the policy | Base tier | Tier 1 | Tier 2 | Tier 3 |
|---|---|---|---|---|
| Under 65 | 24.118% | 16.079% | 8.038% | 0% |
| 65 to 69 | 28.139% | 20.098% | 12.058% | 0% |
| 70 and over | 32.158% | 24.118% | 16.079% | 0% |
The income tiers for these rates are the 2026–27 MLS tiers shown above. These percentages apply to premiums paid up to 31 March 2027. The ATO says the rates applying from 1 April 2027 will be released in March 2027. The ATO's list of changes for this tax time also mentions a proposed change to the rebate for people aged 65 and over that does not apply to 2025–26 returns; it has not published the details on that page.
The rebate can be taken as a reduction in premiums through your insurer, or claimed as a refundable tax offset in your return. It applies to hospital, extras and combined policies, but not to any Lifetime Health Cover loading.
If you nominate a rebate tier with your insurer and your income ends up higher, the ATO recovers the excess as a tax liability, shown on your notice of assessment as an excess private health insurance refund or reduction. If your income ends up lower, the extra rebate is paid to you as a refundable tax offset.
What to have ready at tax time
- your private health insurance statement from your insurer, if you hold a policy
- your spouse's income details, including their reportable fringe benefits, super contributions and investment losses, as these feed the family tests
- the number of dependent children, which changes the family thresholds
- dates of any change in relationship status, cover or residency during the year
Our tax return checklist covers the rest of the paperwork. If you are unsure whether the surcharge or a rebate adjustment will affect your result, our team can check your figures as part of preparing your individual tax return. This guide is general information only.
Frequently asked questions
How much is the Medicare levy?
The Medicare levy is 2% of taxable income, so a taxable income of $75,000 gives a levy of $1,500. People on low incomes pay less or nothing: for 2025–26, a single person (not entitled to SAPTO) pays no levy on taxable income of $28,011 or less, with a reduced levy up to $35,013. The ATO has not yet published the 2026–27 low-income thresholds.
What are the Medicare levy surcharge thresholds for 2026–27?
For 2026–27, the Medicare levy surcharge does not apply to income for MLS purposes of $105,000 or less for singles or $210,000 or less for families. Above that, the rate is 1% (to $123,000 single or $246,000 family), 1.25% (to $164,000 or $328,000) and 1.5% above those amounts. The family threshold rises by $1,500 for each MLS dependent child after the first.
Does extras cover stop the Medicare levy surcharge?
No. Only an appropriate level of private patient hospital cover from a registered Australian insurer avoids the Medicare levy surcharge. Extras-only cover, travel insurance and overseas cover do not count, and the ATO currently states the policy excess must be $750 or less for singles or $1,500 or less for couples and families.
Is the Medicare levy surcharge taken out of my pay?
Generally not. The ATO says the Medicare levy surcharge is not covered by tax withheld by your employer. It is worked out when your return is assessed and appears with the 2% Medicare levy as one amount called Medicare levy and surcharge on your notice of assessment, which can reduce a refund or create a bill.
What is the private health insurance rebate for 2026–27?
For premiums paid from 1 July 2026 to 31 March 2027, the private health insurance rebate for people under 65 is 24.118% at the base tier (income for surcharge purposes of $105,000 or less single, $210,000 or less family), 16.079% at Tier 1, 8.038% at Tier 2 and nil at Tier 3. Higher rates apply when the oldest person on the policy is 65 or over. Rates from 1 April 2027 are due in March 2027.
General information only, not personal advice. Tax rules change and your circumstances matter, so talk to us before acting. See our disclaimer.