Medicare Levy & Surcharge Explained (Australia 2025-26)

The Medicare levy: the standard 2%

The Medicare levy helps fund Australia's public health system. For most residents it is 2% of your taxable income, calculated separately from — and on top of — your income tax. On a $70,000 taxable income, that is $1,400 a year.

Low-income earners pay less or nothing. For 2025-26, if your taxable income is at or below $27,222, you pay no levy. Between that and about $34,027, the levy phases in gradually until the full 2% applies. (Family and senior thresholds are higher.)

Exemptions from the levy

Some people qualify for a full or half exemption from the Medicare levy, including certain foreign residents, people not entitled to Medicare, and some blind pensioners and defence members with full free medical care. You claim an exemption or reduction when you lodge your return.

How to claim the exemption: the Medicare Entitlement Statement

If your exemption is because you were not entitled to Medicare — common for many temporary residents and visa holders — you can't just tick a box. You first need a Medicare Entitlement Statement (MES) from Services Australia. It confirms the exact period you weren't eligible for Medicare, which is the period you can claim the levy exemption for.

Here's the process:

1. Apply after 1 July for the financial year that just ended — you apply for a past year, not the current one.
2. Lodge the application with Services Australia, either online through myGov (fastest) or on the paper Application for a Medicare Entitlement Statement (form MS015). You'll provide your passport, visa and immigration details.
3. Allow up to 8 weeks for it to be processed, so apply early — don't wait until late October.
4. Once you have your MES, claim the exemption at the Medicare levy question (M1) when you lodge your tax return, for the period the statement covers.

Two things to watch: holding an MES does not automatically make you exempt — your dependants, including your spouse, must also be exempt from Medicare for a full exemption. And keep the statement: the ATO can ask you to confirm it. Other exemption categories (such as some foreign residents or members of a diplomatic mission) may not need an MES — check your situation with the ATO.

The Medicare Levy Surcharge: the avoidable extra

The Medicare Levy Surcharge (MLS) is a separate, extra charge of 1% to 1.5%. It applies only if both of these are true:

• Your income for surcharge purposes is above the threshold — $101,000 for singles or $202,000 for families in 2025-26; and
• You did not hold an appropriate level of private hospital cover for the full year.

Hold eligible hospital cover all year, or sit under the threshold, and you pay no surcharge. The rate rises in tiers (singles, 2025-26):

Family thresholds rise by $1,500 for each dependent child after the first. Income for MLS purposes is broader than taxable income (see below).

When hospital cover beats the surcharge

Here is the lever the surcharge is designed to pull. Suppose you are single and earn $110,000 with no hospital cover. Your MLS at 1% would be about $1,100 a year. A basic hospital policy can often be found for less than that — so you end up with actual health cover for less than the tax you would have paid for having none.

Two cautions: only hospital cover counts (extras-only policies do not exempt you), and to avoid the surcharge for the whole year you generally need cover for the whole year — taking it out in June does not undo a year of exposure.

What income counts for the surcharge

The MLS uses income for surcharge purposes, which is wider than taxable income. It generally adds back reportable fringe benefits, reportable super contributions and net investment losses (including negatively geared property). That means you can be caught by the surcharge even if your taxable income alone looks under the threshold — something negatively geared investors in particular should watch.