The Medicare levy surcharge is an extra 1% to 1.5% of income charged to higher earners who have no private hospital cover. For FY2026-27 it starts at $105,000 for singles and $210,000 for families. It is separate from, and on top of, the ordinary 2% Medicare levy.
The FY2026-27 thresholds
| Threshold | Base tier | Tier 1 | Tier 2 | Tier 3 |
|---|---|---|---|---|
| Single | $105,000 or less | $105,001 to $123,000 | $123,001 to $164,000 | $164,001 or more |
| Family | $210,000 or less | $210,001 to $246,000 | $246,001 to $328,000 | $328,001 or more |
| Surcharge rate | 0% | 1% | 1.25% | 1.5% |
The family threshold rises by $1,500 for each dependent child after the first. In FY2025-26 the single threshold was $101,000, so the thresholds moved up meaningfully this year.
Source: ATO, Medicare levy surcharge income thresholds and rates. Checked 21 August 2026.
What it costs, by income
The surcharge is charged on your whole income for surcharge purposes, not just the amount above the threshold. There is no marginal shading, which is why crossing the threshold by a small amount is expensive.
| Income | Tier | Rate | Surcharge a year | A month |
|---|---|---|---|---|
| $100,000 | Base | 0.00% | $0 | $0 |
| $110,000 | Tier 1 | 1.00% | $1,100 | $92 |
| $125,000 | Tier 2 | 1.25% | $1,563 | $130 |
| $140,000 | Tier 2 | 1.25% | $1,750 | $146 |
| $165,000 | Tier 3 | 1.50% | $2,475 | $206 |
| $200,000 | Tier 3 | 1.50% | $3,000 | $250 |
Look at the step at $105,000. Earning one dollar over the threshold with no hospital cover costs you about $1,050, because the 1% applies to the entire amount. This is one of the few genuine cliffs left in the Australian system.
The crossover: when is hospital cover cheaper?
The comparison is simple once the surcharge figure is in front of you. If a qualifying hospital policy costs less per year than the surcharge you would otherwise pay, taking the policy leaves you better off and insured. If it costs more, the surcharge is the cheaper option and you should take it knowingly rather than by accident.
Two conditions make or break that comparison:
- It has to be hospital cover. Extras-only policies covering dental, optical and physio do not exempt you from the surcharge, no matter how much they cost. People buy extras cover believing it does, and it does not.
- The policy must meet the excess limits. A policy with an excess above the allowed maximum does not exempt you either.
The cover also has to be held for the days you want to be exempt. If you take out a policy in March, you are liable for the surcharge on the portion of the year you were uncovered.
What counts as income for the surcharge
Income for surcharge purposes is broader than taxable income. It is your taxable income plus reportable fringe benefits, total net investment losses, and reportable super contributions, including salary sacrifice. For someone with a spouse, the combined figure is used against the family threshold.
That breadth catches two groups. People who salary sacrifice heavily can find their surcharge income is well above their taxable income. And a single high earner who marries a low earner may move from the single to the family threshold and out of the surcharge entirely, which is a large and often unnoticed change.
Lifetime Health Cover is a separate thing
Do not confuse the surcharge with Lifetime Health Cover loading. LHC is a loading on your premium, added at 2% for each year you are over 31 without hospital cover, up to 70%. It is charged by the insurer, not the ATO, and it persists for 10 years of continuous cover. The surcharge is an annual tax that stops the moment you take out qualifying cover. They point the same direction but they are different mechanisms with different rules.
Frequently Asked Questions
What is the Medicare levy surcharge threshold for 2026-27?
$105,000 for singles and $210,000 for families, rising by $1,500 for each dependent child after the first. Above the threshold the rate is 1%, 1.25% or 1.5% depending on which tier you fall into.
Does extras cover exempt me from the Medicare levy surcharge?
No. Only an appropriate level of private patient hospital cover exempts you. Extras policies covering dental, optical or physiotherapy do not, regardless of the premium.
Is the Medicare levy surcharge on top of the Medicare levy?
Yes. The ordinary Medicare levy of 2% applies to nearly all residents. The surcharge is an additional 1% to 1.5% charged only to higher earners without private hospital cover, so someone in Tier 1 pays 3% in total.
Is private health insurance worth it just to avoid the surcharge?
It depends on the numbers in front of you. Compare the annual premium of a qualifying hospital policy against your surcharge, which at $120,000 is $1,200 in FY2026-27. If the premium is lower, you are better off with the policy. We do not give financial advice, and there are non-financial reasons to hold or not hold cover.
How is the surcharge calculated if I only had cover for part of the year?
It is worked out on the days you did not hold qualifying cover. Taking out a policy part way through the year reduces but does not eliminate the surcharge for that year.
A note on what this is
This guide is general information built from the ATO's published material. It is not tax or financial advice, and it cannot take your circumstances into account. Clearway Apps is not a registered tax agent. Where a decision matters, check it against the ATO page linked in each section or talk to a registered tax agent.