The Medicare Levy Surcharge and the Medicare Levy: What's the Difference?

Many people believe that having private patient hospital cover means they don’t have to pay the Medicare Levy Surcharge. While that’s true, they often get confused when they still have to pay the Medicare Levy. So, what exactly is the Medicare Levy Surcharge, what is the Medicare Levy, and why do you have to pay them? Let’s clear up the confusion and break down the differences.

The Medicare Levy Surcharge

The Medicare Levy Surcharge (MLS) is an extra tax that targets higher income earners who don’t have an appropriate level of private patient hospital cover. Its goal is to encourage people to take out private patient hospital cover, which in turn helps reduce pressure on the public healthcare system.

Essentially, if you’re earning above a certain threshold, and you don’t have the right level of private patient hospital cover, you’ll need to pay the MLS.

So, what counts as the “right level” of private patient hospital cover?

• Singles: your level of cover must have an excess of $750 or less

• Couples or Families: your cover must have an excess of $1,500 or less

If you’re policy doesn’t meet these criteria and your income exceeds the MLS threshold, it’s time to pay up.

How is your income for MLS purposes calculated?

Your income for MLS purposes isn’t just your base salary – it’s the sum of the following items for yourself and your spouse, if applicable:

1. Taxable income

2. Reportable fringe benefits

3. Total net investment losses

4. Reportable super contributions

5. If you have a spouse, their share of the net income of a trust on which the trustee must pay tax and which has not been included in their taxable income

Once you have this total, you can check which MLS rate applies to you using the table below. Note that these thresholds and rates apply for the 2024-25 income year.

Threshold	Base Tier	Tier 1	Tier 2	Tier 3
Single Threshold	$97,000 or less	$97,001 to $113,000	$113,001 to $151,000	$151,001 or more
Family Threshold	$194,000 or less	$194,001 to $226,000	$226,001 to $302,000	$302,001 or more
Medicare Levy Surcharge	0%	1%	1.25%	1.5%

For families, the threshold increases by $1,500 for each MLS dependent child after the first.

Medicare Levy

Unlike the MLS, the Medicare Levy is a standard tax to help fund Australia’s public health system – Medicare. It’s set at 2% of your taxable income.

In general, the pay as you go amount that your employer withholds from your salary and wages includes an amount to cover the Medicare Levy.

Depending on you and your spouses circumstances, you may receive a reduction or exemption from paying the Medicare levy.

How do I know if I need to pay the Medicare Levy?

For some, the Medicare Levy is adjusted based on income thresholds. You won’t need to pay it at all if your taxable income falls below certain levels. If you earn above the lower threshold, but below the upper threshold, your Medicare Levy will be reduced. However, if you earn above the upper threshold, the full 2% rate will apply.

Category	Lower Threshold	Upper Threshold
Family taxpayers, if you were entitled to the seniors and pensioners tax offset	$57,198 (increasing by $4,027 for each dependent child)	$71,497 (increasing by $5,034 for each dependent child)
Individuals, if you were entitled to the seniors and pensioners tax offset	$41,089	$51,361
Family taxpayers	$43,846 (increasing by $4,027 for each dependent child)	$54,807 (increasing by $5,034 for each dependent child)
Individual taxpayers	$26,000	$32,500

In a Nutshell: The Key Differences

• Medicare Levy: a 2% tax on your taxable income to support Medicare

• Medicare Levy Surcharge: an additional tax for higher earners who don’t have an appropriate level of private patient hospital cover, intended to reduce the burden on the public health system

  
  

If you’re unsure about how the MLS or Medicare Levy affects you, feel free to contact us for information tailored to your individual circumstances!