Income for MLS purposes: the figure that sets your tier
Split your income into its parts: the tool adds back what the ATO adds back and shows which part the surcharge is charged on.
Your income for MLS purposes
$110,000
Tier 1: the 1.00 % rate falls on $110,000 of taxable income and fringe benefits, $1,100 a year without cover.
| Taxable income | $98,000 |
| Fringe benefits | +$12,000 |
| Super contributions | +$0 |
| Investment losses added back | +$0 |
| Surcharge without cover | $1,100 |
Prepared by Radif Partners · How the figures are built · thresholds read on ato.gov.au, premiums from privatehealth.gov.au data · not tax advice
Income for MLS purposes is not your taxable income. The ATO starts from taxable income, leaves out any assessable first home super saver released amount, and adds four things if they apply to you: reportable fringe benefits from your income statement, reportable super contributions (employer contributions made under salary sacrifice plus personal contributions you claimed as a deduction), your total net investment loss from shares and rental property, and any amount on which family trust distribution tax was paid. For a couple, both partners' totals are added together. That sum decides your tier against the 2026-27 thresholds of $105,000 single and $210,000 family. The rate of the tier is then charged on a narrower base: taxable income, reportable fringe benefits and family trust amounts only. Super contributions and investment losses can push you into a tier without being charged themselves. The ATO case of Josh shows it: $127,000 of income for MLS purposes, but a surcharge worked out on $110,000.
The ATO worksheet, row by row
The paper return instructions for question M2 include a worksheet with a column for you and one for your spouse. It is the clearest statement of what the ATO counts. We follow its rows, and mark which ones also go into the base the surcharge is charged on.
| Row | Item | Counts for the tier | Charged at the rate |
|---|---|---|---|
| a | Taxable income, without any assessable first home super saver released amount | yes | yes |
| b | Total reportable fringe benefits | yes | yes |
| c | Amount on which family trust distribution tax has been paid | yes | yes |
| d | Net financial investment loss | yes | no |
| e | Net rental property loss | yes | no |
| f | Reportable employer super contributions | yes | no |
| g | Deductible personal super contributions | yes | no |
| h | Spouse's share of trust net income taxed to the trustee (spouse column only) | yes | no |
Row j adds the column up. For a single person, that is the income for MLS purposes. With a spouse, the two row j figures added together give the combined income tested against the family threshold of $210,000. Exempt foreign employment income goes into row a when your taxable income is at least $1.
Two ATO examples, two years
Tom, 2026-27. Tom is 35, single, without cover. His taxable income is $90,000 and his reportable fringe benefits $27,000, so his income for MLS purposes is $117,000. That is tier 1, and the 1 % rate falls on the whole $117,000: $1,170. Here the two bases coincide, because Tom has nothing that counts for the tier only.
Josh, 2025-26. Josh is also 35, single, without cover. His taxable income is $90,000, his reportable fringe benefits $20,000 and his net investment losses $17,000. His income for MLS purposes is $127,000, tier 2 at 1.25 %, but the rate is applied to $110,000 only: $1,375. The $17,000 of losses pushed him up a tier without being charged. Under the 2026-27 thresholds the same figures still land in tier 2 and give $1,375.
Add back your own super and losses
Your income for MLS purposes
$122,000
| Taxable income | $96,000 |
| Fringe benefits | +$12,000 |
| Super contributions | +$8,000 |
| Investment losses added back | +$6,000 |
Where people get caught
Most surprises come from add-backs that lower taxable income in one place and reappear here.
- Salary sacrifice. Sacrificing pay into super reduces taxable income but reappears as a reportable employer contribution. On $100,000 of taxable income with $10,000 sacrificed, the test income is $110,000: above $105,000, a surcharge of $1,000 without cover.
- Personal deductible contributions. The same applies to a contribution you make yourself and claim as a deduction in your return.
- Negative gearing. A rental loss that brings taxable income down to $98,000 is added back: $12,000 of loss gives a test income of $110,000 and a surcharge of $980, charged on the $98,000.
- Salary packaging. Fringe benefits count twice over, for the tier and for the base. The salary packaging page works through common packages.
What does not appear in the worksheet is not added. A first home super saver amount released to you is taken out of taxable income for this purpose.
The same figure sets your rebate
The ATO uses the same sum, under the name income for surcharge purposes, to set your private health insurance rebate. An add-back that moves you from tier 1 to tier 2 raises the surcharge rate from 1 % to 1.25 % and cuts the rebate for people under 65 from 16.079 % to 8.038 % of the premium. If you take the rebate as a reduced premium, you tell your insurer which tier you expect to be in; claim too much and you may have a tax liability when you lodge, so the ATO asks you to tell the insurer when your income moves to another tier. The rebate page explains the reconciliation.
Sources
The definition is on the ATO page on income for MLS purposes, thresholds and rates, updated 22 June 2026, and in the worksheet of ATO, M2 Medicare levy surcharge 2026 (tax return instructions). The Tom example is the ATO's 2026-27 example; Josh is the 2025-26 example of the M2 instructions. Our method shows how the calculator splits the two bases.