The Medicare Levy and Surcharge: What You Pay in Your 20s

There's a line on your payslip or tax return called the Medicare levy, and at some point someone tells you that you need private health insurance or you'll "pay more tax". Both are about Medicare, but they're different charges, and most people in their 20s only pay one of them.

The levy is the everyday one. The surcharge only arrives once your income passes a set amount, and it depends on whether you have private hospital cover.

How the Medicare levy comes out of pay

The Medicare levy helps pay for Medicare, the public health system. It's usually 2% of your taxable income, which is your income after any tax deductions. On a taxable income of $60,000, that's $1,200 for the year.

You don't pay it separately. Payroll includes it in the tax taken out of each pay, which is why it doesn't usually have its own line on a payslip. When you lodge your tax return, the ATO works out the exact levy for the year alongside your income tax. Our guide to take-home pay follows one pay from gross to net with the levy inside the tax.

On a low income you pay less or none. For 2025–26, a single person with taxable income of $28,011 or less pays no levy, and the levy is reduced up to $35,013. The ATO applies the reduction for you when your return is assessed. These amounts usually rise a little each year.

When the surcharge applies

The Medicare levy surcharge is a separate charge on top of the levy, for people on higher incomes without private hospital cover. It only applies when both of these are true:

• your income for surcharge purposes is over $105,000 in 2026–27, or $210,000 for families, more with multiple children
• you don't have an appropriate level of private hospital cover.

"Income for surcharge purposes" starts with your taxable income and adds a few things, such as reportable fringe benefits from salary packaging and salary-sacrificed super. The ATO income tests calculator helps check that total.

If you're single and your income for surcharge purposes is $105,000 or less, the surcharge doesn't apply to you, with or without insurance.

The surcharge isn't limited to income above the threshold

Meet Lily, a made-up example: 26, single, with no private hospital cover. She earns a salary of $98,000 and has no other income, so she pays the 2% levy and no surcharge. Then a pay rise takes her to $108,000.

The surcharge starts at 1% for incomes just over the threshold. The rate generally applies to taxable income plus reportable fringe benefits, not just the amount above $105,000.

So Lily's surcharge is $1,080 for the year, on top of a $2,160 levy. Her pay rise still leaves her better off, and tax brackets explain how much of it she keeps, but $1,080 is enough to notice if it arrives as a surprise.

The surcharge waits for tax time

The ATO adds the surcharge when it assesses your tax return, once your income and cover for the whole year are known.

That can turn an expected refund into a smaller one, or into a bill. If a bill is already on its way, our guide to what to do if you can't pay a tax bill explains the payment plan options.

There are two ways to avoid the surprise without deciding anything about insurance yet. You can ask payroll to take out a little more each pay using a Medicare levy variation declaration, which has a question for exactly this. Or you can set the amount aside yourself as the year goes.

A Clova savings goal tracks what you've saved towards a tax bill as you add to it from each pay.

Weighing the surcharge against hospital cover

Once you're over the threshold, the choice is between paying the surcharge or paying for private hospital cover. Hospital cover only counts if it's with a registered Australian health insurer and, for a single person, has an excess of no more than $750. Extras cover on its own, for things like dental and physio, doesn't count.

For a full year, Lily can compare a qualifying premium with $1,080; cover only removes the surcharge for insured days. The government's comparison site, privatehealth.gov.au, lists every policy and what it covers, without ranking insurers. Cover also does something the surcharge doesn't: it pays towards treatment as a private patient, which is worth weighing on its own terms.

If your income moves around, the threshold is checked for the whole financial year. Someone who crosses $105,000 only because of a one-off bonus or a busy year of overtime may be paying the surcharge for that year alone.

Hospital cover gets dearer if you start after 31

There's a second reason people think about hospital cover in their late 20s, and it has nothing to do with income. Lifetime Health Cover loading is an extra amount added to your hospital premium if you don't have hospital cover by the 1 July after your 31st birthday.

The loading is 2% for each year over 30, using your age on the preceding 1 July. If you were 35 on that date when first joining, the loading is 10%. It comes off after 10 years of counted cover and never exceeds 70%.

The loading applies to hospital cover only, never to extras. After holding cover on or after that 1 July deadline, you have 1,094 permitted days without cover across your life. Those days don't increase your loading or count towards the 10 years.

Neither the surcharge nor the loading means you have to buy insurance. Knowing the threshold and the age gives you real numbers to put beside a premium when you decide.

A note from us

We are building Clova, a budgeting app for planning what each pay needs to cover.