Medicare Levy Surcharge 2026–27: New Thresholds and What You Actually Pay Without Hospital Cover
If you've run a Medicare Levy Surcharge calculation this week and the number looked bigger than it did last year, you're not imagining it. The income thresholds reset on 1 July 2026, and for the 2026–27 financial year a single person now clears the surcharge-free zone at $105,000, up from $101,000 the year before. Families get more room too, moving from a $202,000 base up to $210,000. If your income for surcharge purposes sits above those lines and you don't hold an appropriate level of private hospital cover, the ATO adds an extra 1% to 1.5% on top of the standard 2% Medicare levy when your 2026–27 return is assessed.
The surcharge itself isn't new - it's existed since 1997 as a way to encourage higher earners into private hospital cover and ease pressure on the public system. What actually catches people out, year after year, isn't the concept. It's the detail: which income counts, what "appropriate" hospital cover actually means (an extras-only policy doesn't cut it, no matter how comprehensive it feels), and how quickly the sums change once a reportable fringe benefit, a negatively geared rental property, or some salary-sacrificed super gets added into the mix.
In short: for 2026–27, singles earning above $105,000 and families above $210,000 (plus $1,500 for each dependent child after the first) pay a surcharge of 1%, 1.25% or 1.5% of their income unless they hold hospital cover with an excess of $750 or less (single) or $1,500 or less (couple or family). The income used for this particular test adds back several things your regular taxable income figure leaves out - which is where most of the confusion starts.
What's covered in this guide:
• FAQ
What the Medicare Levy Surcharge Actually Is
Most Australians pay the standard Medicare levy of 2% of their taxable income automatically - that funds Medicare generally and has nothing to do with private health insurance. The Medicare Levy Surcharge (MLS) is a separate, additional charge that only applies to people above a certain income who don't hold private hospital cover. It isn't a general penalty for skipping private health insurance - it specifically asks whether you have hospital cover, and extras cover (dental, optical, physio) doesn't count for this purpose at all, no matter how good the policy otherwise is.
The logic, as the ATO explains it, is straightforward: if you can reasonably afford private hospital cover and choose to go without it, you contribute a bit more toward the public hospital system instead through this surcharge.
2026–27 Income Thresholds and Rates
These are the figures that apply to income you earn during the 2026–27 financial year (1 July 2026 to 30 June 2027), as published by the ATO:
• Base tier - no surcharge: Singles up to $105,000 / Families up to $210,000 → 0%
• Tier 1: Singles $105,001–$123,000 / Families $210,001–$246,000 → 1%
• Tier 2: Singles $123,001–$164,000 / Families $246,001–$328,000 → 1.25%
• Tier 3: Singles $164,001 and above / Families $328,001 and above → 1.5%
The surcharge is calculated on your full MLS income, not just the portion above the threshold - so crossing into Tier 1 by even a dollar means the 1% applies to your entire MLS income for the year, not just the excess.
What Changed From 2025–26
For 2025–26, the base thresholds were lower: $101,000 for singles and $202,000 for families, with the same 1% / 1.25% / 1.5% rate structure above that. The 2026–27 increase moves the base threshold up by $4,000 for singles and $8,000 for families.
This is exactly the kind of detail where the financial year you're actually looking at matters. If you're finishing off your return for income earned in 2025–26 (the one due by 31 October 2026), you need to test it against the lower $101,000 / $202,000 thresholds - not the new ones. The $105,000 / $210,000 figures only apply to income earned from 1 July 2026 onward, which is what will show up on the return you lodge in mid-2027. Mixing the two up is a common source of people wrongly assuming they're exempt (or liable) based on the wrong year's numbers.
How Your MLS Income Is Really Calculated
This is where most DIY calculations go wrong. Your income for MLS purposes is not simply the taxable income figure on your tax return - it's that figure plus several items added back on top:
• Your taxable income
• Reportable fringe benefits
• Total net investment loss (this includes net rental property losses, not just losses on shares or managed funds)
• Reportable super contributions - salary-sacrificed amounts and any extra personal contributions you've arranged, on top of the compulsory Superannuation Guarantee your employer pays
• Any amount on which family trust distribution tax has been paid
• Exempt foreign employment income, if your taxable income is more than $1
The part that surprises the most people: a net rental property loss gets added back for this test, even though that same loss is what's reducing your taxable income and your regular tax bill. In other words, negative gearing can lower your tax while doing nothing at all to keep you under the MLS threshold - and in some cases it can make the difference between sitting comfortably under the line and tipping over it, because the loss itself counts as part of your MLS income even as it reduces your taxable income elsewhere.
Worked Examples: What People Actually Pay
A few scenarios, using the 2026–27 figures, show how differently this plays out depending on what's behind the income number:
• Example 1 - straightforward case. Single PAYG employee, salary $98,000, no other reportable items. MLS income = $98,000. That's under the $105,000 base threshold, so no surcharge applies regardless of hospital cover.
• Example 2 - salary sacrifice trap. Single employee on $112,000, salary sacrificing $8,000 a year into super. Looking only at taxable income (reduced to roughly $104,000 after the sacrifice), it would look like they've dropped under the threshold. But the $8,000 reportable super contribution is added straight back: $112,000 MLS income lands in Tier 1 ($105,001–$123,000), meaning a 1% surcharge - about $1,120 - applies if they don't hold hospital cover.
• Example 3 - negative gearing surprise. A couple with combined taxable income of $225,000, where one partner's rental property produced a $15,000 net loss for the year. MLS income = $225,000 + $15,000 = $240,000, which sits in the family Tier 1 band ($210,001–$246,000) - a 1% surcharge of roughly $2,400 if they go without hospital cover, even though the rental loss itself reduced what they actually paid in income tax.
• Example 4 - cover sorts it regardless of income. Single earner on $170,000 (well into Tier 3 territory) who holds hospital cover with a $500 excess. Because the excess sits under the $750 single cap, the cover is "appropriate" and no surcharge applies at all, no matter how high the income is.
Family Thresholds and Dependent Children
The family base threshold of $210,000 isn't fixed for every household - it increases by $1,500 for each MLS dependent child after the first. A family with three dependent children, for example, has a base threshold of $210,000 + ($1,500 × 2) = $213,000, not the plain $210,000 figure. It's worth rechecking this each year, particularly if your family situation has changed (a new baby, a child who's stopped being a dependant), since the ATO's calculation relies on it being reported correctly.
What Counts as "Appropriate" Hospital Cover
To satisfy the MLS exemption, your cover needs to meet a fairly specific definition, set out by the ATO:
• It must be private patient hospital cover (not an extras/ancillary-only policy) from a registered Australian health insurer.
• It must cover treatment provided in an Australian hospital or day hospital - overseas travel insurance doesn't count for this purpose, however comprehensive it is.
• The excess must be $750 or less for a single person, or $1,500 or less for a couple or family.
That excess cap is the detail that genuinely catches people out. A policy that's clearly "hospital cover" in every other sense - but was deliberately chosen with a higher excess to bring the premium down - does not satisfy the exemption if that excess sits above the cap. You can be paying for a real hospital policy and still be liable for the surcharge.
Common Mistakes That Catch People Out
• Assuming extras cover counts. It doesn't, at all - dental, optical and physiotherapy cover is irrelevant to this test.
• Treating it as an all-or-nothing annual test. The surcharge is actually calculated per day. If you only held appropriate cover for part of the year, the surcharge applies pro rata to the days you went without it, not a flat yes/no for the full 12 months.
• One partner covered, the other not. For a family to be fully exempt, the cover generally needs to be appropriate for both partners - a gap on one side can still expose the family to a pro-rata surcharge for the days that partner went without cover.
• Choosing a high-excess policy to save on premiums. A genuinely useful hospital policy can still fail the test purely because its excess sits above $750 (single) or $1,500 (family).
• Forgetting the add-backs. Reportable super contributions and net rental losses both get added back into MLS income, so a return that looks comfortably under the threshold on taxable income alone can still trigger the surcharge once those are factored in.
Medicare Levy vs the Surcharge vs Lifetime Health Cover Loading
These three get mixed up constantly, and they're genuinely different systems:
• Medicare Levy: the standard 2% almost every taxpayer pays, funding Medicare generally. It has nothing to do with private health insurance, and is reduced or exempt only for people on genuinely low incomes.
• Medicare Levy Surcharge (this guide): an extra 1% to 1.5% that applies above the income thresholds covered above, specifically for people without appropriate hospital cover.
• Lifetime Health Cover (LHC) loading: a completely separate, non-tax loading charged by your health insurer - typically 2% on your premium for every year past age 31 that you waited to take out hospital cover. It's billed through your insurance premium, not your tax return, and has its own rules entirely.
Why Some 2026–27 Figures Still Show Last Year's Numbers
As at the time of writing, the ATO had released the 2026–27 Medicare Levy Surcharge income thresholds covered in this guide (last updated 22 June 2026). However, the separate Medicare levy reduction for low-income earners thresholds - the test for whether you pay the ordinary 2% levy at all, not the surcharge - were still showing 2025–26 figures as at their most recent update (30 June 2026).
These are two different tests, with different thresholds, updated on different timetables. Don't assume that because one set of numbers has been refreshed for the new financial year, the other automatically has too - it's worth checking the actual ATO page for whichever test applies to your situation before relying on a figure you've seen quoted somewhere.
Should You Work This Out Yourself, or Have It Checked?
The thresholds themselves are simple enough to look up. Where DIY calculations tend to go wrong is the income side - remembering to add back reportable super contributions, fringe benefits and net investment losses, especially if you're close to a threshold boundary or your circumstances changed partway through the year.
When we prepare a return at Baron Tax & Accounting, working out MLS exposure properly is simply part of going through your figures with you. You send through your income details and private health statement (if you have one), one of our registered agents works out your actual MLS income - not just the taxable income figure - and factors it into your return before anything is lodged. If you'd rather have that checked properly than estimate it off your payslip, get in touch and we'll take it from there.
FAQ
Do I pay the Medicare Levy Surcharge if I only have extras cover?
Yes. Extras-only cover (dental, optical, physiotherapy and similar) doesn't satisfy the MLS exemption under any circumstances - you specifically need private hospital cover.
What's the actual dollar difference between the 2025–26 and 2026–27 thresholds?
Singles moved from a $101,000 base to $105,000 (up $4,000), and families moved from $202,000 to $210,000 (up $8,000), with the same rate structure above those bases.
Does my employer's compulsory super guarantee contribution count toward my MLS income?
No. Only reportable super contributions count - that means amounts you've salary sacrificed or arranged as extra personal contributions, on top of the compulsory Superannuation Guarantee rate your employer pays regardless.
I have a negatively geared rental property - does that help me avoid the surcharge?
Not for MLS purposes. A rental loss reduces your taxable income, but the net amount of that loss is added back when your MLS income is calculated, so it won't help you get under the threshold the way it reduces your regular tax bill.
What if I only held hospital cover for part of the year?
The surcharge is calculated on a per-day basis, so you're only liable for the days you didn't hold appropriate cover - not automatically liable for the whole financial year.
Can a high-excess hospital policy still satisfy the exemption?
Only if the excess is $750 or less for a single person, or $1,500 or less for a couple or family. A higher excess means the policy doesn't meet the "appropriate cover" test, even if it's otherwise a genuine hospital policy.
Does the family threshold change if I have children?
Yes - the family base threshold increases by $1,500 for each dependent child after your first.
Is the Medicare Levy Surcharge the same as the Lifetime Health Cover loading?
No. They're entirely separate systems. LHC loading is charged by your health insurer on your premium if you took out hospital cover later in life; MLS is a tax surcharge based on your income and whether you hold hospital cover at all, assessed through your tax return.
Where can I check the current official thresholds myself?
Directly on the ATO's Medicare levy surcharge income thresholds and rates page, which is updated for each financial year, generally around the middle of the year.
Do I need to do anything if I'm under the base threshold?
No action is needed for MLS purposes if your MLS income sits at or under the base threshold for your situation - the surcharge simply doesn't apply, regardless of whether you hold hospital cover.
This article provides general information only and does not constitute personal tax or financial advice. It does not take into account your objectives, financial situation or needs. Tax rules change and apply differently to each person's circumstances. Before acting, please seek advice from a registered tax agent. Baron Tax & Accounting accepts no liability for any loss arising from reliance on this article. Source references: ATO (ato.gov.au) and other Australian government agencies, current as at the date of publication.
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