The Medicare Levy Surcharge (MLS) is an extra tax of 1.0%, 1.25%, or 1.5% on top of the standard Medicare Levy, paid by people who don't have appropriate private hospital cover and whose income crosses the relevant threshold. It's designed to nudge higher-earning Australians into private cover.
When you're weighing up working an extra day, MLS matters in one specific way: if the extra day pushes you across a threshold, the surcharge applies to your WHOLE income — not just the bit above the threshold. That's a step-change of $1,000+ in tax from a single day's work, and it's invisible if you don't model it.
NestWise's Extra Day Calculator factors MLS into the answer directly. This guide explains how.
The good news: NestWise only needs a Yes/No tick
You'll see a toggle on the Extra Day Calculator asking "Do you have private hospital cover?" — tick if you do, that's it.
We don't ask for your policy number, premium, insurer, or excess amount. The membership number only matters at tax-return time — the ATO uses it to verify your claim. For the Extra Day calculation, knowing whether MLS applies (Yes/No) is all we need.
The thresholds (FY 2025-26)
Three tiers, each kicking in at a higher income. The SINGLE thresholds:
| Income tier | Range | MLS rate |
|---|---|---|
| Below Tier 1 | up to $100,999 | 0% |
| Tier 1 | $101,000 – $118,000 | 1.0% |
| Tier 2 | $118,001 – $158,000 | 1.25% |
| Tier 3 | $158,001 and up | 1.5% |
For couples and families, the thresholds double, plus a per-child uplift:
| Family situation | Tier 1 starts at |
|---|---|
| Couple / family, no kids | $202,000 |
| Couple / family, 1 kid | $202,000 (no uplift for first child) |
| Couple / family, 2 kids | $203,500 (+$1,500 for the second) |
| Couple / family, 3 kids | $205,000 (+$3,000) |
| Couple / family, N kids | $202,000 + $1,500 × (N − 1) |
The uplift means a family with several kids gets a slightly higher threshold than a couple with no kids — small adjustment, but it can matter at the boundary.
What MLS does to an extra day's take-home
The key thing to understand: the MLS rate is applied to your whole income, not just the marginal amount. So crossing a threshold is dramatically more expensive than the gross extra wage suggests.
Single earner crossing Tier 1 ($101,000)
- Today: $100,000 income, MLS = $0
- After extra day: $103,000 income, MLS = 1.0% × $103,000 = $1,030
- The extra $3,000 attracts:
- Income tax (32% marginal at this band): $960
- Medicare Levy (2%): $60
- MLS: $1,030 ← entirely new tax, not just on the marginal $3k
- Net of just $950 from a $3,000 gross extra day
That's a 68% effective tax rate on the marginal earnings — purely because the MLS appeared on the WHOLE income.
Family of 4 (couple + 2 kids) crossing Tier 1 ($203,500)
- Today: combined $200,000, MLS = $0
- After extra day: $205,000 combined → over $203,500 threshold → 1.0% on whichever partner had the income added
- If one partner's individual income is $130k of that, their MLS = 1% × $130k = $1,300 for them alone
This is the exact scenario the calculator now catches. Before this fix shipped (2026-06-03), an Extra Day user near the MLS threshold saw a take-home that was overstated by potentially several thousand dollars.
Why MLS uses combined income but charges individually
For couples, the test that triggers MLS uses combined family income — but the surcharge amount each person pays is calculated on their own individual income.
So if you (earning $130k) and your partner (earning $75k) together come to $205,000 and that crosses the family threshold:
- Both of you are now subject to MLS at Tier 1 rate
- But you pay 1% × $130k = $1,300
- Your partner pays 1% × $75k = $750
- Total family MLS: $2,050
This split matters because an extra day worked by one partner can trigger MLS for both of you, even though only one of you actually earned the extra income. NestWise's calculator handles this correctly — it runs MLS for each partner separately on their own income using the combined-income test.
What 'appropriate' hospital cover means
The cover needs to be:
- A hospital policy from a registered Australian private health insurer (extras-only / general treatment doesn't qualify)
- An excess no greater than $750 for singles or $1,500 for couples/families (combined)
If you had cover for the full financial year you avoid MLS entirely. If you had cover for part of the year, MLS is applied pro-rata for the uncovered days. NestWise's Extra Day Calculator assumes "full year" — for partial coverage, your actual MLS will be lower than the calculator shows.
How to use the toggle
On the Extra Day Calculator at the top of the page you'll find:
- ☐ I have private hospital cover (drives MLS)
- ☐ I have a HECS-HELP debt (see the HECS guide)
By default both default to "no impact" — hospital cover = ticked (most adults have cover, so MLS = 0), HECS = unticked (most don't have a debt). Flip whichever applies to your situation; the take-home figure re-runs.
Use the NestWise Extra Day Calculator → Toggle the private hospital cover option to see how MLS changes your real take-home when an extra day pushes you across a threshold.