Two charges share the word “Medicare”, and they answer different questions. The Medicare levy is 2% of taxable income for Australian residents for tax purposes, unless a reduction or exemption applies. The Medicare levy surcharge (MLS) is a separate charge, paid as well as the levy, by people whose income is above a threshold and who, with their spouse and dependent children, do not all have appropriate private patient hospital cover.
This guide is for someone lodging their own 2025-26 return, the income year 1 July 2025 to 30 June 2026. It rests on ATO pages and one Department of Health page about what counts as hospital cover, all read in September 2026. InkCairn is an independent site, not the ATO and not a tax agent (see how guides are sourced), so where a step is InkCairn’s reading rather than something the ATO states, the guide says so. It cannot see your circumstances and is not personal tax advice. For when the return is due and what lateness can cost, see the 2025-26 lodgment deadline guide.
One detail changes the sums: the income used to test the surcharge threshold is wider than taxable income, and the surcharge rate is then charged on a narrower base. Both are set out below.
The two charges side by side
Work through them in this order. First ask whether the levy is reduced or exempt for you. Then ask whether your income for MLS purposes is above the base threshold and, if it is, whether you and every dependant had appropriate cover on each day.
| Medicare levy | Medicare levy surcharge (MLS) | |
|---|---|---|
| Who pays | Australian residents for tax purposes, unless reduced or exempt | People above an income threshold who, with their spouse and dependent children, do not all have appropriate private patient hospital cover |
| Rate, 2025-26 | 2% of taxable income | 0%, 1%, 1.25% or 1.5%, by income tier |
| How it falls away | A low-income reduction, which the ATO works out, or an exemption category, which you claim by days | Income at or below the base threshold, appropriate cover for the days concerned, or days in a levy exemption category |
| Employer withholding | PAYG withholding from salary or wages generally includes an amount for it | Not covered; the ATO adds it to your tax liability when it assesses your return |
The ATO’s notice of assessment shows the two together as one amount, “Medicare levy and surcharge”.
The Medicare levy: 2% of taxable income
For 2025-26 the ATO’s return instructions say Australian residents for tax purposes are subject to a Medicare levy of 2% of their taxable income unless they qualify for a reduction or exemption. It is on top of income tax and is worked out when your return is lodged. The two routes out are separate tests: a reduction depends on your income, and an exemption depends on a category you fall into.
Low-income reduction
The ATO rule: in 2025-26 you don’t have to pay the levy if your taxable income is equal to or less than the lower Medicare levy threshold. Above the lower threshold and at or below the upper one, you pay part of it. Nothing needs to be claimed: the ATO works out the reduction when your return is lodged. Above the upper threshold the single-person reduction does not apply, although the family reduction below may.
| Category | Lower threshold | Upper threshold |
|---|---|---|
| Entitled to the Seniors and pensioners tax offset (SAPTO) | $44,268 | $55,335 (see note) |
| All other taxpayers | $28,011 | $35,013 |
Note: the ATO says SAPTO for singles ends when rebate income reaches $52,759.
The ATO’s pages say only “You pay only part of the Medicare levy. We will work it out.” InkCairn does not print a phase-in rate because no ATO page read for this guide states one.
Family reduction
The ATO also tests family income. Its 2025-26 return instructions send you to the family test where your taxable income is above your lower threshold ($28,011, or $44,268 with SAPTO) and you had a spouse, a spouse who died in the year, an invalid or invalid-carer offset for a child, or sole care of a dependent child. Its family income page puts the same starting point, for 2025-26, at taxable income above $35,013 ($55,335 with SAPTO). The ATO works out any reduction itself, so either way enter your spouse details and number of dependent children. Family taxable income is the combined taxable income of you and your spouse, or your own income if you are a sole parent. The ATO says that in 2025-26 you don’t have to pay the levy if your family income is equal to or less than the family income threshold, and it publishes a lower and an upper figure for it.
| Threshold | Not SAPTO | SAPTO |
|---|---|---|
| Lower family income threshold | $47,238 | $61,623 |
| Plus, for each dependent child | $4,338 | $4,338 |
| Upper family income threshold | $59,047 | $77,028 |
| Plus, for each dependent child | $5,423 | $5,423 |
The ATO sets its own income test for a child to count as a dependent child for this reduction, with different figures for a child maintained all year and for part of it. It is on the ATO’s family income page, and InkCairn has not reproduced it.
The ATO pages read for this guide carry no Medicare levy thresholds for 2026-27, and earlier years’ thresholds sit on separate ATO pages. Do not use one of those for this return.
Levy exemptions and how to claim one
An exemption removes the levy for the days you are in one of three categories. The ATO’s 2025-26 return instructions treat it as full (the whole 2% levy) or half, counted in days. In myTax the questions read “Full 2% levy exemption – number of days” and the matching half question. The total cannot exceed 365 days, and days that overlap count once. On the paper return the same answers go at question M1, labels V (full days) and W (half days), with claim type C for a Medicare entitlement statement.
- Medical (category 1). You are a blind pensioner, or entitled to full free treatment for all conditions under Defence Force arrangements or a DVA Gold Card. The exemption is full or half depending on dependants. Where family members split a full and a half exemption, the agreement must name the 2025-26 year and be signed on or before the full-exemption claimant lodges.
- Foreign resident (category 2). A foreign resident for tax purposes for the whole of 2025-26 can claim a full exemption (365 days). A part-year foreign resident can claim a full exemption for that part, but only if they had no dependants then or all their dependants were exempt. The ATO’s page does not define tax residency; it points to its residency pages, which InkCairn has not read.
- Not entitled to Medicare benefits (category 3). A full exemption for any period covered by a Medicare entitlement statement (MES) showing no entitlement as a temporary resident for Medicare purposes, again only with no dependants or all dependants exempt. The category also covers members of diplomatic and consular missions who meet the ATO’s stated conditions. An MES alone is not an exemption: the ATO’s example of a spouse who is entitled to Medicare benefits shows that a spouse or dependant with entitlement defeats it.
The ATO defines a dependant for the exemption separately from the reduction and the surcharge; see its dependants for Medicare levy exemption page.
Applying for the MES through myGov
For category 3, the ATO says you apply for the MES online through myGov. Services Australia issues it. InkCairn did not open that application page, because it sits behind myGov, so the steps here are the ATO’s description only. The ATO says:
- “MES applications open on 1 July.”
- Processing “can take up to 8 weeks”.
- “You must wait until you receive your MES before lodging your tax return.”
- “You need to submit a Medicare entitlement statement to Medicare for each income year you want to claim an exemption.”
InkCairn’s suggestion: if category 3 could apply, apply before you plan to lodge, because the ATO says lodging has to wait for the MES. Lodgment dates are in the 2025-26 lodgment deadline guide.
International students
No ATO page read for this guide names international students, so it cannot say whether a particular student qualifies. What the ATO’s pages do say is above: a foreign resident for tax purposes for the whole of 2025-26 can claim a full exemption (365 days), and a temporary resident with an MES showing no Medicare entitlement can claim a full exemption for the period the MES covers, if there are no dependants or all are exempt. Whether a given student is a foreign resident for tax purposes, or holds an MES, was not researched. Start at the ATO’s residency pages and its not entitled to Medicare benefits page.
Can you claim an exemption for a past year?
No ATO page read for this guide says, in terms, whether a levy exemption can be claimed after lodging or for an earlier year. InkCairn’s reading, not an ATO statement: the ATO’s general process for changing a lodged return is the route. Three ATO statements point that way. An exemption is claimed through the return. An individual can request an amendment if they “forgot to include something” or “had a change in circumstance after lodging”. And the ATO says you need an MES for each income year you want to claim an exemption. So a missed exemption would be raised by amending that year’s return, with an MES for that year if category 3 is the basis.
The ATO says an online amendment takes about 20 days to process, and that individuals generally have 2 years from the day after the notice of assessment is sent to amend. Those are the general amendment rules; neither ATO page mentions the Medicare levy. Read the ATO’s pages on how to request an amendment and time limits, and ask the ATO or a registered tax agent, before relying on this reading.
The Medicare levy surcharge
The ATO rule: the MLS may apply if you, your spouse and your dependent children do not all have an appropriate level of private patient hospital cover, and your income is above a threshold. It is on top of the Medicare levy. If you, your spouse and all your dependants hold appropriate cover, you pay no MLS. It is not covered by employer withholding. The ATO adds it to your tax liability at assessment.
A change during the year in income, spouse, dependants or insurance can create MLS liability, and so can cancelling cover while overseas.
Thresholds, tiers and rates for 2025-26
The ATO’s page holds several years’ tables one after another, each headed with its own year. This is the 2025–26 one.
| Threshold | Base tier | Tier 1 | Tier 2 | Tier 3 |
|---|---|---|---|---|
| Single threshold | $101,000 or less | $101,001 – $118,000 | $118,001 – $158,000 | $158,001 or more |
| Family threshold | $202,000 or less | $202,001 – $236,000 | $236,001 – $316,000 | $316,001 or more |
| Medicare levy surcharge | 0% | 1% | 1.25% | 1.5% |
The ATO says: “The family income threshold is increased by $1,500 for each MLS dependent child after the first child.” Its list for 2025-26 is $202,000 for no children or one, $203,500 for 2 children and $205,000 for 3, and so on by $1,500. The ATO’s myTax 2026 instructions say the rate is set by your circumstances on 30 June 2026. If you were single for part of the year and had a spouse for part, the ATO tests each period separately, against the single or family threshold that fits it.
Next year’s figures, not this return’s. For the 2026-27 income year the ATO’s table has a single base threshold of $105,000 and a family base threshold of $210,000, with the same four rates. Do not use them for the 2025-26 return.
If you have a spouse: the own-income rule
For someone with a spouse all year, the ATO’s 2025-26 instructions test your own income for MLS purposes against the “Medicare levy low income earner threshold” first, and then combined family income against the family threshold. If your own income for MLS purposes is at or below that low-income threshold, you pay no MLS, even where family income is over the family threshold.
InkCairn is not printing the dollar figure. The ATO’s page on paying the MLS and its 2025-26 return instructions give different figures for it, and InkCairn could not match either one to the legislation. If your own income is anywhere near that line, read both ATO pages and ask the ATO which figure is current before you rely on either.
Income for MLS purposes: super and fringe benefits
The threshold tests income for MLS purposes, not taxable income alone. The ATO says it is the sum of these items for you, and your spouse if you have one:
- Taxable income, including the net amount on which family trust distribution tax has been paid, and not including any assessable first home super saver (FHSS) released amount for the income year.
- Reportable fringe benefits.
- Total net investment losses: net financial investment losses plus net rental property losses.
- Reportable super contributions: reportable employer super contributions plus deductible personal super contributions.
- If you have a spouse, their share of the net income of a trust on which the trustee must pay tax (under section 98 of the Income Tax Assessment Act 1936) and which hasn’t been included in their taxable income.
If you had exempt foreign employment income, the ATO says to add it to your taxable income if your taxable income is $1 or more.
So the answers to two common questions are yes. Reportable fringe benefits are in the measure (item 2), and so are the two kinds of super contribution the ATO names (item 4). The ATO’s list names those two kinds only. Worksheet 1 in the ATO’s M2 return instructions ties each item to a return label.
What the rate is charged on. The tier comes from income for MLS purposes, but the ATO charges the rate on taxable income, total reportable fringe benefits and any amount on which family trust distribution tax has been paid. It is not charged on the full income for MLS purposes. The ATO’s worked example applies it “only against taxable income and reportable fringe benefits”. Items 3 and 4 above are not on that charged list, so on InkCairn’s reading of the two lists they can move you into a tier without being part of the amount the rate is applied to. The Department of Health’s page words the base more loosely, as your income for MLS purposes. InkCairn follows the ATO, which administers the surcharge and states the base in its 2025-26 return instructions.
Appropriate private patient hospital cover
For 2025-26 the ATO’s return instructions describe appropriate cover as cover from a registered health insurer for hospital treatment in Australia, with an excess of $750 or less for a policy covering only one person and $1,500 or less for all other policies. The Department of Health’s page dates those excess limits from 1 April 2019.
- General (“extras”) cover is not hospital cover.
- Travel insurance and cover from an overseas fund are not private patient hospital cover.
- The Department of Health says overseas visitor cover, overseas student cover and cover from non-registered insurers do not exempt the holder, and that suspended cover, for example while travelling, does not exempt the suspended days.
- If you are unsure whether a policy is at the appropriate level, the ATO says to ask the insurer.
How the ATO says the surcharge is avoided
These are the ATO’s conditions, not a recommendation to hold any product:
- Your income for MLS purposes is at or below the base threshold for your situation (see the table).
- You, your spouse and every dependant had appropriate cover, for the days it applies. The MLS is charged only for the days without cover.
- Days in a Medicare levy exemption category also count as days you do not pay.
InkCairn names no fund and recommends no policy. Whether to hold cover is a decision about premiums and terms this guide cannot weigh for you.
Days, family and dependants
For the MLS you are in a family for any period you had a resident spouse or child, regardless of that person’s income, and contributed to their maintenance. The ATO counts these as dependants for the MLS: a spouse (even one with their own income), children under 21, and full-time student children 21 to 24. A foster child is not a dependant, and neither is an ex-spouse you pay maintenance to. Spouse includes a registered relationship or a de facto relationship on a genuine domestic basis. Unlike the other Medicare levy tests, a parent’s Family Tax Benefit Part A does not stop a child being a dependant of both separated parents for the MLS.
The days question is the number of days you do not have to pay the MLS. On the paper return, question M2 label A takes 365 if you don’t have to pay it for any day of the year, and 0 if you are liable for the whole year. Days you don’t have to pay are days when you and all your dependants had appropriate cover, plus days in a levy exemption category. Overlapping days count once and the total cannot exceed 365 days. If you had cover for part of the year, the MLS is charged only for the days without it. If a family member joined the policy part-way through the year, the ATO’s worked examples leave both spouses liable for the days before that member was added, including the spouse who was covered all year.
Your insurer’s statement
Insurers issue a private health insurance statement only on request. For a myTax or tax agent return the details should be pre-filled; otherwise ask your insurer. The statement carries “Number of days this policy provides an appropriate level of private patient hospital cover”, which the ATO says to use for the MLS question, measured against a full year of 365 days. Where the statement has more than one line, the ATO says to enter each line separately without adding them up.
If your numbers sit near a line
InkCairn’s suggestion: if your income sits close to a tier boundary, your family or cover changed during the year, or you rely on one of the readings labelled as InkCairn’s above, ask the ATO or a registered tax agent before you lodge. Lodgment dates and the cost of lodging late are in the 2025-26 lodgment deadline guide.
Left out on purpose: the private health insurance rebate, earlier years’ tables, and the phase-in rate for the levy reduction. The first two are separate topics. The last is not stated on any ATO page read.