Most people think about private health insurance purely in terms of medical cover — hospital access, shorter wait times, dental and physio. But your policy can also make a real difference to your tax position, and with the 2025–26 thresholds now updated, it's worth knowing exactly where you stand.
There are two sides to this. Hold the right hospital cover, and you sidestep the Medicare Levy Surcharge — an extra tax that bites higher earners without eligible cover. Hold any eligible private health insurance policy, and you may be entitled to a government rebate that reduces what your premiums actually cost you.
Here's how both work, what's changed this financial year, and how to make sure you're not leaving money on the table.
What you need to know — fast
- Eligible hospital cover can protect you from the Medicare Levy Surcharge (MLS), which adds up to 1.5% to your tax bill if you earn above the threshold and don't have cover.
- The private health insurance rebate is a government contribution toward your premiums — you can take it as a monthly discount or as a lump sum at tax time.
- The income thresholds for both the MLS and the rebate increased from 1 July 2025. If you were previously caught by the MLS, it's worth checking whether you still are.
- Claiming more rebate than you're entitled to — because your income ended up higher than expected — will result in a claw-back when you lodge your return.
Does private health insurance give you a tax deduction?
Not in the traditional sense. You can't claim your premiums the way you'd claim a work expense or charitable donation. But the private health insurance rebate — sometimes called the tax offset — achieves a similar end result: it reduces what you actually pay.
The rebate is a percentage of your eligible premium, determined by your income and age. You have two options for how you receive it:
Option 1: Take it as a premium reduction throughout the year
Your insurer applies the rebate to your monthly bill, so you pay less upfront each month. If your policy costs $2,000 a year and your rebate is 24.608%, your out-of-pocket drops to $1,507.84 — the government covers the $492.16 gap directly with your insurer.
The catch: if your income ends up higher than you estimated when you set this up, the ATO will recoup the overpaid rebate when you lodge your return. This appears as an 'excess private health insurance reduction' on your notice of assessment — it either shrinks your refund or adds to what you owe.
Option 2: Claim it as a tax offset when you lodge
Pay the full premium during the year, then claim the rebate through your tax return. Using the same example, you'd pay the full $2,000 across the year and receive $492.16 back from the ATO at tax time.
This approach is cleaner if your income fluctuates — there's no risk of over-claiming, because the ATO calculates your entitlement based on what you actually earned, not an estimate made months earlier.
The ATO's private health insurance rebate calculator at ato.gov.au will tell you exactly what rebate percentage applies to your situation based on income, age, and policy type.
What's the Medicare Levy Surcharge, and do you pay it?
The Medicare Levy Surcharge is an additional income tax — separate from the standard 2% Medicare Levy — that applies to higher-income Australians who don't hold eligible private hospital cover. It was introduced to encourage higher earners to use private hospitals and ease pressure on the public system.
You're liable for the MLS if you earn above the threshold and go without eligible hospital cover for any part of the financial year. For 2025–26, the thresholds are:
- Singles: income above $101,000
- Couples and families: combined income above $202,000
The surcharge is tiered — the higher your income, the higher the percentage. At Tier 3, it's 1.5% of your taxable income. On a $160,000 salary, that's $2,400 in additional tax. A basic hospital policy with a $750 excess typically costs considerably less than that, which is why taking out cover often makes financial sense even if you never use it.
Watch out: Extras-only cover — dental, optical, physio — does not exempt you from the MLS. You need eligible hospital cover specifically. And it needs to be held for the full financial year to avoid any partial-year surcharge.
2025–26 income thresholds and rebate rates
The thresholds below apply for the period 1 July 2025 to 31 March 2026. Because the rebate is recalculated each 1 April, the rates for 1 April to 30 June 2026 are marginally different — but the income tiers themselves remain the same for the full financial year.
Getting your health insurance statement for tax time
For most people, this is straightforward. If you lodge through myTax or use a registered tax agent, your private health insurance details are pre-filled by the ATO using data supplied directly by your health fund. In most cases, you just confirm the information and move on.
If you do need to request a statement manually — for example, if you've switched funds or there's a discrepancy — contact your insurer directly. The statement will include:
- The total premiums paid that are eligible for the rebate
- How much rebate you received, if any, as a premium reduction
- The number of days you held eligible hospital cover during the financial year
- Benefit codes based on your age and the applicable rebate period
If you switched funds during the year, you'll need a statement from each fund you were with. Both amounts feed into your tax return, so make sure neither gets missed.
At Linkora Health, we work with health funds and healthcare organisations to improve member communication, commercial performance and strategic positioning. If you'd like to discuss how to better communicate the value of private health insurance to your members — particularly around tax time — we'd welcome the conversation.