# The Medicare Levy and Surcharge: What You Pay in Your 20s > What the 2% Medicare levy is, when the Medicare levy surcharge applies in 2026–27, why it arrives at tax time and what changes for hospital cover at 31. Canonical HTML: https://getclova.com/blog/medicare-levy Clova is an Australian budgeting app. [Join the waitlist](https://getclova.com/) [Home](https://getclova.com/) → [Guides](https://getclova.com/blog) → [Life costs](https://getclova.com/blog/topic/life-costs) → [The Medicare Levy and Surcharge: What You Pay in Your 20s](https://getclova.com/blog/medicare-levy) - Author: Marnix - Published: 2026-09-23 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](/blog/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](/blog/first-tax-return), the ATO works out the exact levy for the year alongside your income tax. Our guide to [take-home pay](/blog/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](/blog/job-offer-salary-package) and salary-sacrificed super. The [ATO income tests calculator](https://www.ato.gov.au/calculators-and-tools/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. | Income for surcharge purposes | Medicare levy surcharge (AUD) | | --- | ---: | | $105,000, at the threshold | $0 | | $105,001, one dollar over | $1,050 | | $108,000, Lily after her pay rise | $1,080 | Single, salary only, no private hospital cover, 2026–27. The rate rises to 1.25% from $123,001 and 1.5% from $164,001. 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](/blog/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. Lily's year on $108,000 (made up, no private hospital cover, paid fortnightly). Each payday: about $83 of the tax withheld is the Medicare levy, $2,160 across 26 pays. At tax time: a $1,080 surcharge on her tax assessment, not taken from any pay. 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](/blog/cant-pay-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](https://www.ato.gov.au/forms-and-instructions/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. Clova is an Australian budgeting app. Join the waitlist and we’ll be in touch. [Join the waitlist](https://getclova.com/) ## 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](https://www.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. ## Common questions ### Do I still pay the Medicare levy if I have private health insurance? Yes. Private hospital cover only takes away the Medicare levy surcharge. The 2% levy applies to almost everyone with taxable income above the low-income threshold, with or without private cover. ### Does extras cover stop the Medicare levy surcharge? No. Only private hospital cover counts, and for a single person its excess can't be more than $750. Extras cover on its own, for things like dental and physio, doesn't stop the surcharge. ### Do international students pay the Medicare levy? They can claim an exemption if they weren't entitled to Medicare and any dependants also qualify for exemption. They need a Medicare Entitlement Statement before claiming. ### Is the Medicare levy surcharge worked out on taxable income? Mostly, but not only. Whether you pass the threshold depends on your income for surcharge purposes, which adds things like reportable fringe benefits and salary-sacrificed super to your taxable income. The surcharge itself generally applies to taxable income plus reportable fringe benefits. The ATO income tests calculator, linked in Sources, helps check your threshold income. ### Can I get out of paying the Medicare levy? Only through a reduction or exemption. Low incomes pay less or nothing, and some people are exempt, such as temporary residents without Medicare. Everyone else pays 2%, whether or not they use the public system. ## Sources 1. [Income tests calculator](https://www.ato.gov.au/calculators-and-tools/income-tests-calculator) · Australian Taxation Office 2. [What is the Medicare levy?](https://www.ato.gov.au/individuals-and-families/medicare-and-private-health-insurance/medicare-levy/what-is-the-medicare-levy) · Australian Taxation Office 3. [Medicare levy reduction for low-income earners](https://www.ato.gov.au/individuals-and-families/medicare-and-private-health-insurance/medicare-levy/medicare-levy-reduction/medicare-levy-reduction-for-low-income-earners) · Australian Taxation Office 4. [Medicare Levy Act 1986, law in force 1 July 2026](https://www.legislation.gov.au/C2004A03351/2026-07-01/2026-07-01/text/original/epub/OEBPS/document_1/document_1.html) · Federal Register of Legislation 5. [Medicare levy surcharge income, thresholds and rates](https://www.ato.gov.au/individuals-and-families/medicare-and-private-health-insurance/medicare-levy-surcharge/medicare-levy-surcharge-income-thresholds-and-rates) · Australian Taxation Office 6. [Paying the Medicare levy surcharge](https://www.ato.gov.au/individuals-and-families/medicare-and-private-health-insurance/medicare-levy-surcharge/paying-the-medicare-levy-surcharge) · Australian Taxation Office 7. [Medicare Levy Surcharge](https://www.privatehealth.gov.au/health_insurance/surcharges_incentives/medicare_levy.htm) · Private Health Insurance Ombudsman (privatehealth.gov.au) 8. [Lifetime Health Cover](https://www.privatehealth.gov.au/health_insurance/surcharges_incentives/lifetime_health_cover.htm) · Private Health Insurance Ombudsman (privatehealth.gov.au) 9. [Medicare levy variation declaration](https://www.ato.gov.au/forms-and-instructions/medicare-levy-variation-declaration) · Australian Taxation Office 10. [Not entitled to Medicare benefits](https://www.ato.gov.au/individuals-and-families/medicare-and-private-health-insurance/medicare-levy/medicare-levy-exemption/not-entitled-to-medicare-benefits) · Australian Taxation Office ## Related reading - [Take-Home Pay: What Lands in Your Account and Why](https://getclova.com/blog/take-home-pay) - [Your first payslip, explained line by line](https://getclova.com/blog/payslip-explained) - [Your First Tax Return in Australia: What to Gather and How to Lodge](https://getclova.com/blog/first-tax-return) [Report a correction](https://getclova.com/contact) This guide explains a budgeting method in general terms; it doesn't consider your circumstances.