Medicare Levy (2.0%) & Surcharge (MLS) Thresholds Guide (2026–2027)
Essential ATO guide to the 2.0% Medicare levy, low-income threshold exemptions, and avoiding the 1.0%–1.5% Medicare Levy Surcharge (MLS) without private health insurance.
- ✓The Medicare Levy is a standard 2.0% tax on taxable income that helps fund public healthcare in Australia.
- ✓Low-income earners below statutory thresholds ($26,000 for singles) receive a partial or full Medicare levy reduction.
- ✓The Medicare Levy Surcharge (MLS) is an extra 1.0% to 1.5% tax levied on high earners who do not maintain eligible private hospital cover.
- ✓MLS single threshold starts at $97,000, and family threshold starts at $194,000 for the 2026–2027 tax year.
- ✓Holding appropriate private hospital cover (with excess of $750 or less for singles) exempts you from paying the MLS penalty.
In Australia, public healthcare (Medicare) is partially funded by personal tax contributions. Understanding the difference between the mandatory 2.0% Medicare Levy and the additional Medicare Levy Surcharge (MLS) is essential when analyzing your pay slip and managing end-of-year tax liabilities.
This guide outlines statutory thresholds, low-income exemptions, MLS penalty tiers, and private health cover rules for 2026–2027.
1. Standard 2.0% Medicare Levy Explained
The Medicare Levy applies at a flat rate of 2.0% of your taxable income. It is automatically calculated alongside Pay-As-You-Go (PAYG) tax withholding by your employer.
Low-Income Medicare Levy Reduction Tiers:
- •Full Exemption (0% Levy): Single taxpayers earning under $26,000 pay no Medicare levy.
- •Phase-In Range: Incomes between $26,001 and $32,500 pay a reduced Medicare levy rate.
- •Full Rate (2.0%): Incomes above $32,500 pay the full 2.0% Medicare levy.
2. Medicare Levy Surcharge (MLS) Penalty Tiers
To encourage higher earners to take out private health insurance and reduce pressure on public hospitals, the ATO imposes an additional Medicare Levy Surcharge (MLS) on individuals and families earning above specific income limits who do not hold eligible private hospital cover.
3. How to Avoid the Medicare Levy Surcharge
If your income exceeds $97,000 as a single person or $194,000 as a family, purchasing an eligible private hospital insurance policy with a maximum excess of $750 (singles) or $1,500 (families) completely waives the MLS penalty.
In many cases, the annual cost of a basic private hospital policy is less than the MLS tax penalty, yielding a net financial saving while providing private health coverage.
Frequently Asked Questions
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