I don't have private hospital cover — do I have to pay the Medicare levy surcharge, and how much?

You've never bothered with private health insurance. You're in your thirties, you see a GP twice a year, and paying a few thousand dollars for a hospital policy you don't use has always felt like money set on fire. Then your salary went up, and this year's tax return has a line on it you weren't expecting — an extra charge that has nothing to do with your deductions.

That's the Medicare levy surcharge. It sits on top of the 2% Medicare levy that almost everyone pays, and its whole design is to make going without private hospital cover cost you something once your income passes a set point.

The thresholds you're being tested against

The surcharge is charged at 1%, 1.25% or 1.5% depending on which income tier you land in. For the 2025–26 year — the return most people are lodging right now — nothing is payable up to $101,000 for singles or $202,000 for families. Above that, the 1% tier runs to $118,000 for singles and $236,000 for families; the 1.25% tier runs to $158,000 and $316,000; and 1.5% applies above those.

From 1 July 2026 the thresholds were indexed upward. For 2026–27 the free zone is $105,000 for singles and $210,000 for families, the 1% tier runs to $123,000 and $246,000, the 1.25% tier to $164,000 and $328,000, and 1.5% applies above that. So a pay rise that put you just over the line last year may not do so this year.

Two mechanics matter as much as the numbers. If you have a spouse or dependants, the family threshold applies rather than the single one, and that family threshold rises by a further $1,500 for each dependent child after the first. And the surcharge isn't all-or-nothing across the year: it's worked out on the number of days you and your dependants went without appropriate cover, so a policy taken out in February reduces the charge for the months it was in force rather than wiping the year clean.

The income being tested isn't the income on your payslip

This is where the surcharge surprises people who thought they were comfortably under the line. The test doesn't use your salary, and it doesn't use taxable income on its own. Income for surcharge purposes is your taxable income plus reportable fringe benefits, plus reportable super contributions — that means both employer contributions above the standard rate and personal contributions you claimed a deduction for — plus your net investment loss, plus any amount on which family trust distribution tax has been paid.

The net investment loss piece is the one that catches Sydney property investors. If your rental deductions exceed your rental income, that loss reduces your taxable income — but it gets added straight back for this test. A negatively geared apartment can drop your taxable income below the threshold and leave you liable for the surcharge anyway. The same goes for salary sacrificing extra into super: it lowers the tax you pay, but it doesn't lower the income figure used here.

Worth knowing, though, is that this broad figure only decides whether you're caught and at which rate. The surcharge itself is then levied on a narrower base — your taxable income plus reportable fringe benefits — so the added-back items push you into a tier without themselves being taxed at the surcharge rate.

Having health insurance and having the right cover are different things

The second common misconception is assuming any policy does the job. It has to be private patient hospital cover from an Australian-registered health insurer, and it has to sit within an excess limit: $750 or less for a single policy, $1,500 or less for a couple or family policy. Choosing a higher excess to bring the premium down can quietly take a policy outside what counts.

Extras cover on its own — dental, optical, physio, chiropractic — is not hospital cover, no matter what it costs. Ambulance-only cover isn't either. Neither is overseas visitors or overseas student health cover, or travel insurance, which is worth flagging for anyone here on a temporary visa who assumed their compulsory policy had this covered. And for a family, everyone has to be on the same or related policies: one dependant left off can expose the household.

The honest summary is that whether a hospital policy is worth buying is arithmetic, not a rule — it depends on your income, your family situation, and what a policy actually costs you, and it's a decision to make with the premium quote in front of you rather than in June in a panic. What we'd suggest is checking the right number first: work out your income for surcharge purposes, including any rental loss and extra super, before assuming you're under the threshold, and check the excess on a policy you already hold.

This is general information current as at July 2026 and not advice for your circumstances — the outcome depends on your income, your spouse's income, dependants and the cover you hold. If you have a negatively geared investment property, or your income has moved close to a threshold, our individual tax return service and the income tax calculator on this site are the places to start.