Understanding the New Medicare Levy Surcharge Thresholds for 2025–26

The Australian Taxation Office (ATO) has updated the Medicare Levy Surcharge (MLS) income thresholds and rates for the 2025–26 financial year. These changes may impact your tax obligations—especially if you don’t hold an appropriate level of private patient hospital cover.

The MLS is an additional tax (on top of the standard Medicare levy) designed to encourage higher-income earners to take out private hospital insurance. If your income exceeds the threshold and you don’t have suitable cover, you’ll be liable for the surcharge.

2025–26 MLS Income Thresholds and Rates:

• Base Tier MLS rate is 0%:

  For single threshold of $101,000 or less OR for a family threshold of $202,000 or less.

• Tier 1 MLS rate is 1%:

  For single threshold of $101,001 – $118,000 OR for a family threshold of $202,001 – $236,000

• Tier 2 MLS rate is 1.25%:

  For single threshold of $118,001 – $158,000 OR for a family threshold of $236,001 – $316,000

• Tier 3 MLS rate is 1.5%:

  For single threshold of $158,001 or more OR for a family threshold of $316,001 or more

Note: The family threshold increases by $1,500 for each MLS-dependent child after the first.

How Is Your MLS Income Calculated?

Your income for MLS purposes includes:

• Taxable income

• Reportable fringe benefits

• Net investment losses

• Reportable super contributions

• Amounts on which family trust distribution tax has been paid

• If you have a spouse, your combined income is considered.

Example Scenario

Tom, a 35-year-old single taxpayer, earns a taxable income of $90,000 and has $27,000 in reportable fringe benefits. His total income for MLS purposes is $117,000, placing him in Tier 1. Without appropriate private hospital cover, Tom will pay 1% MLS, amounting to $1,170.

Avoiding the Surcharge:

To avoid paying the MLS, Ensure you have private patient hospital cover with a registered health insurer. The policy must have an excess of $750 or less for singles or $1,500 or less for families. General or extras cover (e.g., dental, optical) does not qualify.

What This Means for You

If you're a high-income earner or part of a family unit nearing the threshold, now is the time to:

• Review your private health insurance

• Calculate your MLS income

• Consider tax planning strategies with your advisor

At 7 Bells, we help individuals and families navigate these changes with clarity and confidence. Reach out to us for a personalised review at info@7bells.com.au

Reference:

1. Medicare levy surcharge income, thresholds and rates