The Medicare Levy Surcharge (MLS) is an Australian Government initiative aimed at encouraging uptake of private hospital cover to reduce demand on the public hospital system.

The MLS is a tax additional to the Medicare Levy and is applied to middle to high income earners without private hospital insurance. If you have extras cover only you will still have to pay MLS.

What is the difference between the Medicare Levy and the Medicare Levy Surcharge?

The Medicare Levy is used to fund the Australian public health care system and most taxpayers will pay this. It amounts to 2% of your taxable income.

The MLS is additional to the Medicare Levy and is applied to those earning above a specific income who are without hospital cover.

How does the MLS work?

For those without hospital cover, the MLS is applied at a rate of 1%, 1.25% or 1.5% once you exceed a certain income.

In simple terms, you’ll pay the MLS if you’re single and earn more than $90,000 or if your family income is more than $180,000. But, like anything to do with the tax system, it’s not entirely straightforward.

The Australian Tax Office uses a special definition of income when calculating your MLS that includes fringe benefits, investments and superannuation.

It also depends on whether you take out an ‘appropriate level’ of hospital cover – this is determined by your policy’s excess. Appropriate hospital covers are those with an excess of $750 or less for single membership or $1500 or less for family memberships.

We suggest you talk to your accountant if you want to get into the nitty gritty and see how the MLS affects your specific financial circumstances.

What next?

Find out more about the Medicare Surcharge Levy on the Australian Tax Office website or talk to your accountant.