Key takeaways
- The Medicare levy is 2% of taxable income for 2026-27: $1,600 on an $80,000 income.
- The Medicare levy surcharge (MLS) starts at $105,001 single / $210,001 family for 2026-27, at rates of 1%, 1.25% and 1.5% by tier.
- Holding an appropriate level of private patient hospital cover makes the surcharge 0% at any income. Extras-only cover does not count.
- Low-income earners pay a reduced levy or none. The ATO's published single thresholds for 2025-26 are $28,011 to $35,013.
- Exemptions exist for three groups: certain medical categories (blind pensioners, Defence Force, DVA Gold Card holders), foreign residents, and people not entitled to Medicare benefits.
- Your employer's PAYG withholding already allows for the levy; the exact amount is settled when your return is assessed.
Levy vs surcharge in 30 seconds
The levy: 2% of taxable income, paid by most taxpayers, collected through withholding, no opt-out by buying insurance. The surcharge: an income-tested penalty of 1% to 1.5% of surcharge income for people above the thresholds without private hospital cover. The 2026-27 surcharge tiers:
| 2026-27 | Base tier | Tier 1 | Tier 2 | Tier 3 |
|---|---|---|---|---|
| Single income | $105,000 or less | $105,001–$123,000 | $123,001–$164,000 | $164,001+ |
| Family income | $210,000 or less | $210,001–$246,000 | $246,001–$328,000 | $328,001+ |
| MLS rate | 0% | 1% | 1.25% | 1.5% |
The family threshold rises by $1,500 for each MLS dependent child after the first. These are the ATO's current-year tiers, updated June 2026.
Calculate your levy and surcharge
To put numbers on your own situation, the Medicare levy calculator works out the 2% levy and tests your income against the 2026-27 surcharge tiers in one pass.
The Medicare levy: 2% of taxable income
The levy part-funds the public health system and is charged on top of income tax at each marginal rate. It applies to taxable income, so deductions reduce it, and it is worked out automatically when you lodge. You will rarely notice it as a separate payment because the amount your employer withholds each payday already builds it in, alongside the rates from the 2026-27 tax brackets.
Worked example: $75,000 taxable income
The low-income reduction
Below a lower threshold you pay no levy at all; between the lower and upper thresholds the levy phases in at 10 cents per dollar over the lower figure rather than 2% of everything. The ATO's published thresholds at the time of writing are for the 2025-26 year, the year being lodged now:
| Single taxpayer (2025-26) | Lower threshold | Upper threshold |
|---|---|---|
| Entitled to seniors and pensioners tax offset | $44,268 | $55,335 |
| All other taxpayers | $28,011 | $35,013 |
Worked through: a single taxpayer on $29,000 in 2025-26 pays $98.90, being 10c on the $989 above the lower threshold, instead of the full $580. The 2026-27 thresholds are set by legislation later in the year; until the ATO publishes them, treat the 2025-26 figures as the current published set. Family thresholds also exist and scale with children.
Families have their own reduction thresholds that scale with dependants, tested on combined family taxable income. If the single test fails you, the family test may still cut the levy.
Levy vs surcharge: side by side
| Medicare levy | Medicare levy surcharge | |
|---|---|---|
| Rate 2026-27 | 2% | 1%, 1.25% or 1.5% by tier |
| Who pays | Most taxpayers above the low-income thresholds | Only singles above $105,000 / families above $210,000 without hospital cover |
| Income base | Taxable income | Income for MLS purposes, with add-backs |
| Removed by insurance | No | Yes, with hospital cover |
| How it is collected | Built into PAYG withholding, settled at assessment | Charged at assessment |
The collection difference explains a common July surprise. The levy has been drip-fed out of every pay: on a $90,000 salary it is $1,800 for the year, roughly $69.23 a fortnight inside your withholding, so assessment holds no shock. The surcharge has no withholding equivalent. Cross a tier without cover and the full amount arrives as a single line on your notice of assessment.
The surcharge: who actually pays it
The MLS is charged on your income for surcharge purposes, not just taxable income, and the whole amount is surcharged once you cross a tier, not just the excess. A single person on $117,000 of surcharge income without hospital cover sits in Tier 1 and pays 1%: $1,170 for the year, on top of the $2,340 levy.
Worked example: single, $90,000 salary plus fringe benefits
This mirrors the ATO's own published example for 2026-27. Note the trap: the salary alone sits under the threshold. The packaging pushed it over.
For families the tier boundaries stretch with children: the threshold rises by $1,500 for each MLS dependent child after the first. A couple with three dependent children therefore has a base tier ending at $213,000 rather than $210,000. Spouses are tested on combined income, which is how a modest dual income clears the family threshold faster than either partner expects.
Income for surcharge purposes
The MLS income test adds together taxable income, reportable fringe benefits, reportable super contributions (salary-sacrificed and personal deductible super) and total net investment losses, plus a spouse's equivalents if you have one. Negatively geared property does not shelter you here: the loss is added back. The components are the same family of add-backs as adjusted taxable income, so a figure built for one income test travels to the others. Any reportable fringe benefits on your income statement count in full.
Avoiding the surcharge
Hold an appropriate level of private patient hospital cover for the full income year and the surcharge is nil at any income. Extras cover (dental, optical, physio) does not qualify on its own, and cover held for only part of the year prorates: you are surcharged for the uncovered days. Whether the policy premium beats the surcharge is straightforward arithmetic at Tier 1: the surcharge on $110,000 is $1,100 a year, so compare that against the annual premium of a basic hospital policy. Above Tier 1 the case for cover strengthens with income: at $130,000 the 1.25% rate makes the surcharge $1,625, and at $170,000 the 1.5% rate costs $2,550 a year. Check what the levy and surcharge do to your pay overall with the take-home pay calculator.
Medicare levy exemption categories
Exemptions remove the 2% levy itself, in full or half, and are claimed in your tax return. The ATO groups them into three categories:
- Medical exemption (Category 1)
For blind pensioners and people entitled to full free medical treatment for all conditions under Defence Force arrangements or a Veterans' Affairs Gold Card. Whether the exemption is full or half depends on your dependants: broadly, full if you had none or they were all exempt or paying the levy themselves, half if you had a dependant who was neither. Couples can sign a family agreement to decide who claims which.
- Foreign residents
Foreign residents for tax purposes can claim exemption for the period of foreign residency, since the levy funds a system they cannot generally use.
- Not entitled to Medicare benefits
People who were not entitled to Medicare benefits, most commonly temporary visa holders, can claim an exemption for that period. The ATO's exemption pages set out the evidence requirements.
A reduction and an exemption are tested separately: miss one and you may still qualify for the other. There is no separate application form for either: you complete the Medicare levy items in your tax return and the ATO works out the reduction or exemption when it assesses you, exactly as it does the levy itself. If neither applies, the levy is simply part of your annual tax, and the PAYG calculator shows it as its own line on any salary.
Frequently asked questions
What is the Medicare levy?
What is the Medicare levy surcharge threshold for 2026-27?
Do I pay both the levy and the surcharge?
Does private health insurance remove the Medicare levy?
Is the levy taken out of my pay?
Who is exempt from the Medicare levy?
Does extras cover avoid the surcharge?
Is the Medicare levy going up in 2026-27?
Why is my surcharge income higher than my salary?
Sources and further reading
- ATO: Medicare levy surcharge income, thresholds and rates (2026-27 tiers; accessed 28 July 2026)
- ATO: What is the Medicare levy?
- ATO: Medicare levy reduction for low-income earners (2025-26 thresholds)
- ATO: Medicare levy exemption and Medical exemption from Medicare levy
Related resources
Medicare Levy Calculator
Levy and surcharge on your exact income
Open →2026-27 Tax Changes
Everything that moved on 1 July 2026
Open →Take-Home Pay Calculator
Net pay after tax, levy and offsets
Open →
Narelle Hartigan is a CPA-qualified tax accountant with over a decade of experience in Australian personal taxation and payroll. She founded PAYG Calculator Australia to make tax withholding easy for every Australian worker to understand.