Explaining the Medicare Levy Surcharge and the Private Health Insurance Rebate
If you earn above a certain income in Australia, your private health cover — or lack of it — can directly affect how much tax you pay. Two key mechanisms come into play: the Medicare Levy Surcharge (MLS) and the Private Health Insurance Rebate.
Let’s break down how each works and what the current income thresholds mean for you.
The Medicare Levy vs. the Medicare Levy Surcharge
All Australian taxpayers pay the Medicare Levy (usually 2% of taxable income) to help fund the public healthcare system.
The Medicare Levy Surcharge (MLS) is an additional tax that applies if:
You don’t have private hospital cover, and
Your income for MLS purposes is above certain thresholds.
| Tier | Singles | Families | Surcharge Rate |
|---|---|---|---|
| Base Tier | $0 – $97,000 | $0 – $194,000 | 0% |
| Tier 1 | $97,001 – $113,000 | $194,001 – $226,000 | 1% |
| Tier 2 | $113,001 – $151,000 | $226,001 – $302,000 | 1.25% |
| Tier 3 | $151,001+ | $302,001+ | 1.5% |
Example:
If you’re a single earning $110,000 and don’t have private hospital cover, you’ll pay an extra 1% in tax — that’s about $1,100 more.
If you have a partner or dependants, your combined family income is used. The thresholds also increase by $1,500 for each child after the first.
The Private Health Insurance Rebate
The Private Health Insurance Rebate is a government contribution that helps reduce the cost of private health insurance premiums.
It’s income-tested, meaning higher earners receive a smaller rebate (and the highest tier receives none).
| Tier | Singles | Families | Rebate % |
|---|---|---|---|
| Base Tier | $0 – $97,000 | $0 – $194,000 | 24.608% |
| Tier 1 | $97,001 – $113,000 | $194,001 – $226,000 | 16.405% |
| Tier 2 | $113,001 – $151,000 | $226,001 – $302,000 | 8.202% |
| Tier 3 | $151,001+ | $302,001+ | 0% |
(Rebate percentages decrease slightly if you’re 65 or older.)
You can either:
Claim the rebate through your insurer, which reduces your premiums automatically, or
Claim it at tax time as an offset on your return.
How These Work Together
If your income is close to the $97,000 (single) or $194,000 (family) thresholds:
Without private hospital cover → you may pay the Medicare Levy Surcharge.
With private cover → you avoid the surcharge and may receive a rebate on your premiums.
In short: private hospital insurance can reduce your tax bill, and the rebate helps offset some of the cost.
Need Help?
If you’re unsure whether you’ll be affected by the surcharge or rebate clawback, a quick tax review can clarify your position and potentially save you money.
Book a consultation with our tax accountants to ensure your private health and tax strategy are working together efficiently.