Earning Over $97k? The Hidden Tax of Not Having Private Health Insurance

In Australia, everyone pays a 2% Medicare Levy at tax time to fund the public health system. However, what many young professionals and new immigrants don't realise is that if you are a high-income earner and do not hold appropriate Private Hospital Cover, the ATO will slap you with an extra 1% to 1.5% penalty known as the Medicare Levy Surcharge (MLS).

This penalty often amounts to thousands of dollars. Many clients only discover this "hidden tax" when they come to us in July for their tax return, but by then, it's too late to fix it for that year.

1. Will I have to pay the MLS? (The Thresholds)

Once your income crosses this threshold, if you do not have private hospital cover for the full 365 days of the year, the ATO will forcibly deduct this surcharge from your tax refund (or add it to your tax bill).

MLS Penalty vs. Insurance Estimator

Would you rather pay thousands in penalties to the tax office, or spend less on private health insurance to protect yourself? Calculate your net benefit below.

Your Status:

Total Annual Income (Combined if Family): $120,000

ATO Penalty if NO Insurance

$1,200

Est. Cost of Basic Hospital Cover

$1,100

Buying the wrong insurance? You still get fined!

To avoid the MLS, your private health insurance must include Hospital Cover with an excess of $750 or less for singles, and $1,500 or less for families. If you only purchase "Extras Cover" (just for dental, optical, or physio), the ATO considers you uninsured, and you will still be charged the full penalty!

2. EOFY Advice: Is it too late to buy now?

The MLS is calculated on a pro-rata (daily) basis. If you purchase hospital cover halfway through the financial year, you will still pay the penalty for the exact number of days you were uninsured.

For example, if you buy hospital cover on April 1, 2026, you were uninsured for roughly 274 days of this financial year (July 2025 to June 2026). The ATO will charge you the MLS for those 274 days. The good news is, the sooner you buy it, the less the penalty will be, and you will be completely exempt from the surcharge next financial year.

Next Steps: Alongside the MLS, high-income earners also face the Division 293 Super tax and the Lifetime Health Cover (LHC) loading. Before June 30, contact Loyal Bright Accountants for a comprehensive tax planning session. We can help you legally reduce your "MLS Income" through strategies like Salary Sacrificing and Super contributions to drop you completely below the threshold!