Medicare levy surcharge: why you can owe it under $101,000 (and why extras cover won't help)

On 1 October 2026, ABC News published When are tax returns due? Why is my refund so low?. It names the Medicare levy surcharge as one reason a refund comes in smaller than people expect, or comes back as a bill.

If you are lodging the 2025–26 return yourself, the usual deadline is 31 October. In 2026 that date is a Saturday. The ATO says that when 31 October falls on a weekend, you lodge on the next business day, which this year is Monday 2 November. If you lodge your own return between 1 July and 31 October and it results in a bill, the ATO says payment is due by 21 November. If the assessment is issued after 31 October, payment is due 21 days after that assessment. To lodge later through a registered tax agent, the ATO says you need to engage them before 31 October.

Two lines people are using to skip the check:

• "My taxable income is under $101,000, so I'm fine."
• "I've got health insurance, so I'm fine."

Both can be wrong on the return you are lodging now.

What the surcharge is

The Medicare levy surcharge is 1%, 1.25% or 1.5% on top of the Medicare levy. For most Australian residents the levy itself is 2% of taxable income. The surcharge is a separate amount. It can apply when you do not have an appropriate level of private patient hospital cover and your income for surcharge purposes is over the threshold.

It is separate from Lifetime Health Cover loading. The ATO describes that loading as an extra on your hospital premium if you did not hold private hospital cover from the year you turn 31. Your insurer charges the loading. The surcharge is worked out on your tax return.

2025–26 thresholds

These rates are for the return open now. "Income" in this table is income for Medicare levy surcharge (MLS) purposes, not taxable income on its own. The next section is how that figure is built.

Income for MLS purposes	Rate
Single: $101,000 or less	0%
Single: $101,001 – $118,000	1%
Single: $118,001 – $158,000	1.25%
Single: $158,001 or more	1.5%
Family: $202,000 or less	0%
Family: $202,001 – $236,000	1%
Family: $236,001 – $316,000	1.25%
Family: $316,001 or more	1.5%

The family threshold increases by $1,500 for each dependent child after the first. A single person with a dependent child uses the family threshold.

For 2026–27 the base thresholds rise to $105,000 for singles and $210,000 for families. That is next year's return.

When you do pay, the ATO applies the rate from your circumstances on 30 June 2026 and where the income sits in this table. A spouse on that day means combined family income and the family tiers. Single on that day means your own income and the single tiers.

The income test adds amounts back

Taxable income is the start of the test, not the whole of it. For you, and for your spouse if you have one, the ATO's income for MLS purposes adds:

• taxable income, leaving out any assessable First Home Super Saver released amount
• reportable fringe benefits
• total net investment losses, meaning net financial investment losses and net rental property losses
• reportable super contributions: reportable employer super contributions (salary sacrifice into super is the usual one) and deductible personal super contributions

Couples combine those totals. A family trust distribution tax amount can go in as well. So can exempt foreign employment income, when your taxable income is $1 or more, and a spouse's share of certain trust income the trustee is taxed on.

Salary sacrifice into super is a reportable employer super contribution. It is not in your taxable income. It is added back for this test. $95,000 of taxable income plus $10,000 sacrificed into super is $105,000 of income for MLS purposes. For a single person that is the 1% tier, above $101,000.

The percentage is applied to a shorter list. The ATO's 2025–26 instructions for question M2 say the rate is 1%, 1.25% or 1.5% of:

• your taxable income
• your total reportable fringe benefits
• any amount on which family trust distribution tax has been paid

Reportable super and net investment losses can lift you into a higher tier. They stay out of the amount the percentage multiplies.

The ATO's 2025–26 example is Josh, single, without appropriate hospital cover. Taxable income $90,000, reportable fringe benefits $20,000, net investment losses $17,000. Income for MLS purposes is $127,000, so he is tier 2 at 1.25%. The instructions say the percentage is only applied against taxable income and reportable fringe benefits:

($90,000 + $20,000) × 1.25% = $1,375

The same rule, on the $95,000 taxable income plus $10,000 salary-sacrifice case, with no reportable fringe benefits and no family trust distribution tax amount, is 1% of $95,000. A full year without appropriate hospital cover is $950.

The ATO's Tom example is on the thresholds page for 2026–27, the following year. Tom is single, 35, with no dependants and without appropriate hospital cover. Taxable income $90,000 and reportable fringe benefits $27,000 give income for MLS purposes of $117,000, and the tier 1 rate of 1%. The ATO says the amount is calculated on his taxable income of $90,000 and total reportable fringe benefits of $27,000, and his liability is $1,170 ($117,000 × 1%). Tom has no reportable super and no investment loss in the example, so those two amounts are the whole of his income for MLS purposes. Josh is the example that separates the test from the amount charged.

The same kind of add-back appears in HELP repayment income. The bands are different. A deduction lowers taxable income, which feeds both the tier and the amount the rate multiplies. What you actually get back from a deduction is in what a deduction is actually worth.

One exemption is easy to miss. If you had a spouse for the whole of 2025–26 and combined income is over the family threshold, the M2 instructions still exempt you when your own income for MLS purposes is $28,011 or less.

What counts as cover

Appropriate cover is hospital treatment cover from a registered health insurer. The excess has to be $750 or less for a policy covering only one person, or $1,500 or less for every other policy. Excess is what you pay before the insurer pays the claim.

Extras cover does not qualify. The ATO calls it general cover, formerly ancillary, and lists optical, dental, physiotherapy and chiropractic treatment as the sort of thing it pays. If you are unsure your policy is hospital cover at that excess, ask the fund.

The test includes your dependants. For this surcharge that means your spouse, a child under 21, and a child aged 21 to 24 studying full time, where they were an Australian resident and you contributed to their maintenance. A stretch of the year in which you, your spouse, or a dependant lacked appropriate hospital cover can still be charged.

Cover for only part of the year is pro-rata. In the ATO's 2025–26 example, Jacinta is single with income for MLS purposes of $109,000 and takes out private patient hospital cover on 16 January 2026. She pays the surcharge for the days before that cover, and not for the days she holds it. Where the instructions show the arithmetic, they take the levy base, multiply by the rate, then multiply by the liable days divided by 365.

If your family situation changed during the year — a new spouse, a separation, or you became or stopped being a sole parent — the single threshold and the family threshold can apply to different periods. The M2 instructions have worked examples for that. The rate still follows your circumstances on 30 June.

Which outcome

For a year in which your circumstances stayed the same, the fork is short. All year? means appropriate hospital cover for the whole year: the $750 or $1,500 excess cap, for you and your dependants. Over the line? means income for MLS purposes is over the threshold for your circumstances on 30 June 2026. Some days? means you held that cover for part of the year only.

flowchart TD
  cover{"All year?"}
  cover -->|Yes| none[No surcharge]
  cover -->|No| over{"Over the line?"}
  over -->|No| clear[No surcharge]
  over -->|Yes| partial{"Some days?"}
  partial -->|Yes| pro[Pro-rata]
  partial -->|No| full[Full year]

The 30 June question is how the ATO picks the rate: family tiers if you had a spouse on 30 June 2026, single tiers if you were single that day. A change of family situation during the year can split the days across the two thresholds. This diagram does not draw that split.

Why it can show up as a bill

Ordinary PAYG withholding is built for income tax and the Medicare levy. The ATO's Medicare levy page says the amount your employer withholds generally includes an amount to cover the levy, and that the surcharge is a separate levy. The tax tables take into account the tax-free threshold, the Medicare levy, and study and training support loans.

Extra withholding for the surcharge is something you ask for. Question 4 on the Medicare levy variation declaration is that request: whether you want your payer to increase the amounts withheld to cover the surcharge. Those instructions were last updated on 11 December 2024 and still show the 2024–25 thresholds ($97,000 single and $194,000 family). For this return, use the 2025–26 table above. Without that request, ordinary pay has not set the surcharge aside. It is calculated when you lodge, which is how a return that looked like a refund can come back smaller, or as a bill.

What to have in front of you

myTax pre-fills private health insurance information when the fund has sent it. Check what landed. The number of days you and your dependants were covered is on the private health insurance statement. The fund's website can show it, or you can ask for a printed copy.

Reportable fringe benefits and reportable employer super contributions are on your income statement, or on a payment summary if you still get one. They belong in the income tests section of the return as well as in this calculation. Keep that statement and the private health statement with the rest of the year's records.

This is general information, not tax advice. The ATO's Medicare levy surcharge pages, or your registered tax agent, are the check for your own return.