One million Australians may face a private health tax penalty

An earner on A$200,000 without hospital cover could owe an additional A$3,000.

Around one million Australians are expected to receive a surprise tax bill this year for failing to hold private hospital insurance.

The Medicare Levy Surcharge (MLS) is a tax penalty levied on higher-income earners who do not have private hospital cover, according to new research from comparison website Finder.

Whilst Australian Taxation Office data shows that 885,087 people paid the surcharge during the 2023-24 financial year, forecasting suggests that figure will reach approximately one million this year as wage inflation pushes more citizens into higher tax brackets.

For the 2025-26 financial year, the surcharge applies to single individuals earning more than $70,700 (A$101,000) and families earning over $141,400 (A$202,000).

The penalty is calculated at between 1% and 1.5% of a person's entire taxable income, rather than just the portion above the threshold.

The threshold calculation includes total taxable income, alongside voluntary superannuation contributions and fringe benefits.
Consequently, an individual’s base salary may sit below the threshold, but additional benefits can still trigger the surcharge.

Financial analysts note that for a single earner just clearing the $70,700 (A$101,000) threshold, the penalty results in an additional tax bill of roughly $700 (A$1,000).

For an individual earning $140,000 (A$200,000) without private health insurance, the surcharge reaches $2,100 (A$3,000).

Finder health insurance expert Ceyda Erem stated that many consumers remain unaware of how the tax is applied.

Erem noted that for the majority of people affected by the MLS, the annual cost of a basic private hospital policy is lower than the value of the tax penalty itself.

($1.00 = A$1.44)