What's the difference between the Medicare levy and the Medicare surcharge?
The Medicare Levy is a standard 2% tax paid by most Australian residents to help fund the public health system, while the Medicare Levy Surcharge (MLS) is an extra 1% to 1.5% tax paid only by higher-income earners who do not hold eligible private patient hospital cover.
📊 Key Differences at a Glance
| Feature | ✅ Medicare Levy | ⚠️ Medicare Levy Surcharge (MLS) |
|---|---|---|
| Who pays | Most Australian taxpayers | High-income earners without private hospital cover |
| Rate | Fixed 2% of taxable income | Extra 1% to 1.5% of income |
| Can you avoid it? | No (unless low income or exempt) | Yes (by getting private hospital cover) |
| Income thresholds | Low-income thresholds apply | Starts at $105,000 (singles) / $210,000 (families) |
✅ The Medicare Levy
- Purpose: Helps fund Australia’s public healthcare system (Medicare).
- Standard Rate: Exactly 2% of your taxable income.
- Application: Paid by almost all working Australians, usually withheld by employers via Pay As You Go (PAYG).
- Exemptions: Low-income earners or specific visa holders may get a reduction or full exemption.
⚠️ The Medicare Levy Surcharge (MLS)
- Purpose: Encourages higher earners to use private hospitals to ease strain on the public system.
- Extra Rate: Adds an extra 1%, 1.25%, or 1.5% depending on income tier.
- Application: Applies if your income is above the threshold ($105,000 for singles and $210,000 for families) and you do not have appropriate private hospital cover for the full year.
- Avoidance: You can completely avoid the MLS by maintaining an eligible hospital cover policy for yourself, your spouse, and your dependents. (Note: Extras-only cover does not exempt you).
Is Medicare levy and Medicare levy surcharge the same?
No, the Medicare levy and the Medicare levy surcharge are not the same thing.
They are two separate charges managed by the Australian Taxation Office.
Medicare Levy
- What it is: A base tax paid by most Australian taxpayers to help fund the public health system.
- The rate: Generally 2% of your taxable income.
- Who pays it: Most working Australians, unless you qualify for a specific low-income reduction or medical exemption.
Medicare Levy Surcharge (MLS)
- What it is: An extra tax added on top of the base Medicare levy.
- The rate: Between 1% and 1.5% of your income, depending on how much you earn.
- Who pays it: Higher-income earners who do not have an appropriate level of private patient hospital cover.
- The threshold: It applies if your income is above $105,000 for singles or $210,000 for families (for the 2026–27 financial year) and you lack eligible private hospital insurance.
Who needs to pay Medicare surcharge?
You need to pay a Medicare surcharge, known as IRMAA (Income-Related Monthly Adjustment Amount), if your modified adjusted gross income (MAGI) exceeds specific government thresholds.
Who Pays the Surcharge
- High-Income Enrollees: People enrolled in Medicare Part B (medical insurance) or Part D (prescription drug coverage) with incomes above set limits must pay IRMAA.
- Income Lookback: The Social Security Administration (SSA) looks at the tax return you filed from two years prior. For example, 2026 surcharges are based on your 2024 tax data.
- Income Thresholds (2026 / 2024 Tax Year):
- Individual tax filers with a MAGI over $109,000.
- Married couples filing jointly with a MAGI over $218,000.
- Married individuals filing separately who lived with their spouse at any time during the year and have a MAGI over $109,000.
- Married individuals filing separately who lived apart from their spouse the entire year with a MAGI over $409,000.
Late Enrollment Surcharges (Alternative)
You may also pay a different kind of surcharge if you delayed enrollment in Medicare Part B or Part D past your initial enrollment period without qualifying coverage (like a workplace plan).
How to avoid the Medicare levy surcharge?
You can avoid the Medicare Levy Surcharge (MLS) by keeping your income below the government threshold or by holding an eligible private hospital insurance policy for the entire financial year.
The Australian Taxation Office applies the MLS as an extra tax (ranging from 1% to 1.5%) for higher-income earners who do not have appropriate hospital cover.
1. Keep Your Income Below the Threshold
If your income for MLS purposes is at or below the base tier, you do not pay the surcharge:
- Singles: $105,000 or less per year.
- Couples and Families: $210,000 or less per year (plus $1,500 for each dependent child after the first).
(Note: "Income for MLS purposes" includes your taxable income, reportable fringe benefits, net investment losses, and any exempt foreign employment income).
2. Purchase Eligible Private Hospital Cover
If your income is above the threshold, the only way to avoid the surcharge is to buy an appropriate private hospital policy from a registered health insurer.
- Must be Hospital Cover: Basic, Bronze, Silver, or Gold tier hospital policies qualify.
- Extras-Only Cover Does Not Count: General treatment or "extras" policies (like dental, optical, or physio) do not exempt you from the MLS.
- Check the Excess: Your policy's yearly excess (front-end deductible) must be $750 or less for singles and $1,500 or less for families/couples.
3. Maintain Cover for the Full Financial Year
- You must hold the hospital cover for every single day of the financial year to completely avoid the surcharge.
- If you only have cover for part of the year, you will still pay a prorated surcharge for the exact days you were uninsured.
- You can check policies and compare options via platforms like Medibank or Bupa.
At what point do you pay the Medicare levy surcharge?
You pay the Medicare Levy Surcharge (MLS) when your income for surcharge purposes goes above specific thresholds and you do not have appropriate private patient hospital cover.
Income Thresholds (2026–27 Financial Year)
- Singles: Over $105,000
- Families or couples: Over $210,000 (this family amount goes up by $1,500 for each dependent child after the first)
(For the 2025–26 financial year, the lower limits are $101,000 for singles and $202,000 for families).
Surcharge Rates
If you earn over the limit and lack hospital cover for any part of the year, the extra tax rate depends on your income tier:
- Tier 1: 1.0%
- Tier 2: 1.25%
- Tier 3: 1.5%
You can check details on the Australian Taxation Office page.
Difference Between Medicare Levy & Medicare Levy Surcharge
How much Medicare levy do I pay?
For most taxpayers, the Medicare levy is 2% of your taxable income.
Standard Rate and Calculation
- You pay this levy on top of your normal income tax to help fund Australia's public health system.
- If you earn $70,000 in taxable income, your standard Medicare levy is $1,400 (2% of $70,000).
- Your employer usually withholds this amount from your pay during the year, and it is calculated automatically when you use the Australian Taxation Office Medicare Levy Calculator or lodge your tax return.
Low-Income Reductions and Exemptions
- Low-income reduction: You may pay a reduced levy or nothing at all if your taxable income falls below specific thresholds. For example, single taxpayers with a taxable income below $28,011 are exempt (for the 2025–26 income year).
- Full exemptions: Certain individuals, such as specific foreign residents or people with medical requirements, do not have to pay the levy.
Medicare Levy Surcharge (MLS)
- This is a separate additional charge of 1% to 1.5%.
- It only applies if you do not have private patient hospital cover and your income is above $105,000 for singles or $210,000 for families.
- You can check details on thresholds through the ATO Medicare Levy Surcharge Guide.
Why am I being charged a Medicare surcharge?
You are likely being charged a Medicare surcharge because your income from two years ago exceeded specific government thresholds, triggering an Income-Related Monthly Adjustment Amount (IRMAA).
Why IRMAA Happens
- Two-Year Lookback: Medicare checks the Modified Adjusted Gross Income (MAGI) from your federal tax return filed two years prior (for example, 2026 surcharges are based on your 2024 tax return).
- Income Thresholds: If your MAGI went over $109,000 for single filers or $218,000 for married couples filing jointly, a surcharge is automatically added to your Part B and Part D premiums.
- Added Cost: This extra amount is not part of your standard premium; it goes directly to Medicare or is taken out of your Social Security benefit.
What You Can Do
- Check for Errors: Review the tax return Medicare used to verify if your reported income was correct.
- File an Appeal: If your income dropped because of a qualifying life-changing event—such as retirement, a reduction in work hours, divorce, or the death of a spouse—you can request a reduction using Form SSA-44 via the Social Security Administration.
Who is required to pay the Medicare levy surcharge in 2026?
You are required to pay the Medicare Levy Surcharge (MLS) in 2026 if your income for surcharge purposes exceeds specific thresholds and you (or your spouse and dependants) do not maintain an appropriate level of private patient hospital cover.
For the 2026–27 financial year (starting 1 July 2026), the baseline income thresholds are:
- Singles: Earning more than $105,000
- Families / Couples: Earning a combined income of more than $210,000 (increases by $1,500 for each dependent child after the first)
Surcharge Tiers and Rates (2026–27)
The extra tax rate ranges from 1% to 1.5% of your income depending on your tier:
- Tier 1 (1% rate): Singles $105,001–$123,000 | Families $210,001–$246,000
- Tier 2 (1.25% rate): Singles $123,001–$164,000 | Families $246,001–$328,000
- Tier 3 (1.5% rate): Singles $164,001 and above | Families $328,001 and above
Note: For the remainder of the 2025–26 financial year returns (lodged in 2026), the single threshold is $101,000 and the family threshold is $202,000.
At what income level does Medicare surcharge kick in?
Medicare income surcharges, known as the Income-Related Monthly Adjustment Amount (IRMAA), begin for single filers with a Modified Adjusted Gross Income (MAGI) over $109,000 and for married couples filing jointly with an income over $218,000 based on 2024 tax returns for 2026 coverage.
2026 IRMAA Income Brackets & Surcharges
Medicare looks at your tax return from two years prior (your 2024 tax return determines your 2026 surcharge). Crossing a threshold by even $1 triggers the full surcharge for that tier.
| Single MAGI | Joint MAGI | Part B Monthly Premium | Part D Monthly Surcharge |
|---|---|---|---|
| $109,000 or less | $218,000 or less | $202.90 | $0 |
| $109,001 to $137,000 | $218,001 to $274,000 | $284.10 | $14.50 |
| $137,001 to $171,000 | $274,001 to $342,000 | $405.80 | $37.50 |
| $171,001 to $205,000 | $342,001 to $410,000 | $527.50 | $60.40 |
| $205,001 to $499,999 | $410,001 to $749,999 | $649.20 | $83.30 |
| $500,000 or more | $750,000 or more | $689.90 | $91.00 |
Note: Part D surcharges are added on top of your chosen private prescription drug plan's normal monthly premium.
Key Details to Remember
- Modified Adjusted Gross Income (MAGI): Calculated using your Adjusted Gross Income plus any tax-exempt interest income.
- Life-Changing Events: If your income dropped due to events like retirement, marriage, or divorce, you can appeal the surcharge using Form SSA-44 via the Social Security Administration.
- You can review official publications directly through the Centers for Medicare & Medicaid Services.
How to avoid Medicare premium surcharge?
You can avoid or reduce Medicare premium surcharges—known as IRMAA (Income-Related Monthly Adjustment Amount)—by lowering your Modified Adjusted Gross Income (MAGI) below the government thresholds.
Medicare looks at your tax return from two years prior to determine if you owe a surcharge. For example, 2026 surcharges are based on your 2024 tax-year income. Surcharges hit Part B and Part D when single incomes exceed $109,000 or married joint incomes exceed $218,000 (for 2026).
Strategies to Lower Your MAGI
- Use Qualified Charitable Distributions (QCDs): If you are age 70½ or older, you can send money directly from your IRA to a charity. This counts toward your Required Minimum Distributions (RMDs) without adding to your taxable income.
- Spread Out Roth Conversions: Converting traditional IRA funds to a Roth account creates taxable income in the year of the conversion. Do this in smaller chunks over several years rather than all at once to avoid a massive income spike.
- Make Tax-Advantaged Contributions: If you are still working past age 65, max out your traditional 401(k) or IRA contributions to lower your current adjusted gross income.
- Be Mindful of Capital Gains: Avoid large, one-time sales of property, stocks, or other appreciated assets in a single calendar year. Spread capital gains out or use tax-loss harvesting to offset them.
- Use Tax-Efficient Investments: Choose exchange-traded funds (ETFs) instead of high-turnover mutual funds that pass unexpected capital gains down to you.
File an Appeal for Life-Changing Events
If your income dropped because of a qualifying life event, you can ask the Social Security Administration to waive the surcharge using Form SSA-44. Qualifying events include:
- Retirement or reduced work hours
- Divorce or annulment
- Death of a spouse
- Loss of income from property or a pension
You can learn more detailed planning tips at Medicare Resources or read the official guidance via Ameriprise Financial.