Medicare Levy & Surcharge 2026-27: Rates, Thresholds & Exemptions

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:

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 with the low-income reduction. For the surcharge on its own, including fringe benefits, family thresholds and part-year cover, use the Medicare levy surcharge calculator.

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.

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:

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.

The difference between the Medicare levy and the Medicare levy surcharge

They are two separate charges, and the ATO uses exactly that word: the Medicare levy surcharge "is a separate levy to the Medicare levy", payable in addition to it rather than instead of it. The levy is 2% of taxable income and nearly every taxpayer above the low-income thresholds pays it. The surcharge is 1%, 1.25% or 1.5% and bites only when two things are true at once for 2026-27: your income for surcharge purposes is above $105,000 as a single or $210,000 as a family, and you did not hold an appropriate level of private patient hospital cover.

Three practical consequences follow from that.

• Insurance moves one and not the other. Take out hospital cover and the surcharge drops to 0% at any income. The 2% levy does not move an inch. Only a low-income reduction or an exemption category touches the levy itself.
• They are tested on different income figures. The levy is charged on taxable income. The surcharge is charged on income for MLS purposes, which adds back reportable fringe benefits, reportable super contributions and total net investment losses, plus a spouse's equivalents. That is how a $90,000 salary with $27,000 of reportable fringe benefits lands in Tier 1 on $117,000 while the payslip alone looks clear of the threshold by $15,000.
• They arrive at different times. The levy is drip-fed, because the PAYG amount your employer withholds already includes an amount to cover it. The surcharge has no withholding equivalent and lands whole on your notice of assessment.

The one thing they do share is that paying one does not discharge the other. On $130,000 of taxable income with no hospital cover and nothing to add back, Tier 2 applies and you pay the 2% levy and the 1.25% surcharge: $2,600 plus $1,625, or $4,225 for the year.

Levy vs surcharge: side by side

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.

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:

1. 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.

2. 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.

3. 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

Sources and further reading

• ATO: Medicare levy surcharge income, thresholds and rates (2026-27 tiers; re-checked 31 July 2026)
• ATO: What is the Medicare levy? (the 2% rate and the ATO's statement that the surcharge is a separate levy; re-checked 31 July 2026)
• ATO: Medicare levy reduction for low-income earners (still showing 2025-26 thresholds when re-checked 31 July 2026)
• ATO: Medicare levy exemption and Medical exemption from Medicare levy

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