The Medicare Levy and Surcharge
Most taxpayers pay a 2% Medicare levy on top of income tax. Higher earners without private hospital cover pay an extra Medicare levy surcharge of 1% to 1.5% — often more than a basic policy would cost.
- The levy: 2% of taxable income for most people, reduced or removed for low-income earners.
- The surcharge: an extra 1% to 1.5% (the Medicare levy surcharge) applies to higher earners who don't hold private hospital cover.
- The point: for incomes over the surcharge threshold, a basic hospital policy often costs less than the surcharge it avoids.
01 The 2% Medicare levy
The Medicare levy is 2% of your taxable income, helping fund Australia's public health system. It's separate from income tax and the marginal rates, though it's collected together. Low-income earners pay a reduced levy or none at all, with the reduction phasing in above a threshold. The 'marginal rate including Medicare' figures used elsewhere — 34.5%, 39%, 47% — already fold this 2% in.
Shows: the 2% Medicare levy plus any Medicare levy surcharge for a single, by income and private hospital cover (2024-25 tiers). Ignores: the low-income levy reduction, family thresholds, and exemptions.
On the defaults above, the worked example shows: Without hospital cover, the 1.25% surcharge adds $1,500 on top of the 2% levy — often more than a basic policy costs.
Source: ATO — Medicare levy
02 The Medicare levy surcharge
The Medicare levy surcharge is an additional charge on higher earners who don't hold an appropriate level of private hospital cover. For singles in 2024-25, it's nil up to $97,000, then 1% from $97,001, 1.25% from $113,001, and 1.5% from $151,001 (family thresholds are higher). It's designed to encourage private cover and ease demand on the public system. Crucially, it applies to your whole taxable income once you cross a threshold, not just the amount above it.
Source: ATO — Medicare levy surcharge
03 When cover beats the surcharge
For many higher earners a basic private hospital policy costs less than the surcharge it avoids, which turns this into an arithmetic question rather than a preference.
Someone on $130,000 without cover pays a 1.25% surcharge — about $1,625 a year — which is frequently more than an entry-level hospital policy. In that position you are paying either way, and only one of the two options provides anything in return.
The comparison changes below the threshold. Under $97,000 for a single there is no surcharge, so private cover has to justify itself purely on what it delivers, and for a healthy person with no expected procedures it often does not.
Two details worth checking. The policy has to be an appropriate level of hospital cover from a registered Australian insurer — extras-only policies do not exempt you from the surcharge, which is a common and expensive misunderstanding. And the surcharge is calculated on the days you were uncovered, so taking out a policy part-way through a year reduces it proportionally rather than eliminating it.
Family thresholds are higher than single ones and increase for each dependent child, so a household near the line should check the family figure rather than assuming the single one applies.
The full decision is in Super vs Taxable: Where Should Your Next Dollar Go.
Source: ATO — Medicare levy surcharge
The Medicare levy surcharge is one of the few taxes you can simply opt out of by buying something useful. If you're a single over about $97,000 with no hospital cover, you're often paying a surcharge that exceeds the cost of a basic policy — pure waste. Run the two numbers. And remember it's keyed to taxable income, so retirees living on tax-free super over 60 frequently sit under the thresholds regardless of how well they're living.
FAQ
How much is the Medicare levy?
2% of your taxable income for most people, reduced or removed for low-income earners below the relevant threshold.
What is the Medicare levy surcharge?
An extra 1% to 1.5% on higher earners who don't hold private hospital cover — for singles in 2024-25, starting at $97,001 of income.
What are the surcharge income tiers?
For singles in 2024-25: nil to $97,000; 1% from $97,001; 1.25% from $113,001; 1.5% from $151,001. Family thresholds are higher.
Sources
Regulator references
- ATO — Medicare levyThe Medicare levy, who pays it and the reductions and exemptions available.Last verified: 2026-06-19
- ATO — Medicare levy surchargeThe Medicare levy surcharge and the income tiers at which it applies.Last verified: 2026-06-19
Calculator unit tests · the assertions this page's worked example is checked against, and their last result
Changelog
- 2026-06-19 — initial publish (new format)
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Jordan Reeves
Founder of Talk Through Wealth. A software engineer for over a decade before turning to retirement planning, Jordan built the projection engine after watching family members get fragmented, country-by-country advice that never reconciled. He writes about retirement the way the engine computes it: month-by-month, lifetime-long, and skeptical of any rule of thumb that hasn't been run through the math.