Is salary packaging worth it? How it changes your fortnightly take-home
The benefit of salary packaging varies by your income, the benefits chosen, and any associated costs; there is no single figure.
Is salary packaging worth it? The basics
Salary packaging – also called salary sacrificing – lets you swap part of your pre-tax salary for benefits like a car, laptop, or extra super. Because your taxable income drops, you pay less income tax and Medicare levy. But whether it boosts your fortnightly take-home depends on your income, the benefits you choose, and any costs your employer passes on.
The Australian Taxation Office explains that a salary sacrifice arrangement reduces your taxable income, meaning you may pay less tax. However, you cannot claim a deduction for the packaged expense, and most benefits are subject to fringe benefits tax (FBT) paid by your employer.
How it changes your fortnightly pay
Your take-home pay is what lands in your bank account after tax and the Medicare levy. Salary packaging lowers your taxable income, so less tax is withheld each pay period. The ATO provides a clear example: on a $65,000 salary without packaging, your annual tax (including Medicare) is about $11,588, leaving net disposable income of $41,912 after car expenses. With a car packaged using employee contributions, your net disposable income rises to $43,593 – a gain of roughly $1,681 a year, or about $65 a fortnight.
But the outcome depends on your marginal tax rate. The 2026–27 tax brackets show that income between $18,201 and $45,000 is taxed at 15 cents per dollar, while income from $45,001 to $135,000 is taxed at 30 cents per dollar. If you are in the higher bracket, packaging saves you 30 cents in tax for every dollar sacrificed (plus 2 cents Medicare), making it more valuable. Moneysmart notes that salary packaging is usually more effective for people on middle to high incomes because their marginal rate is higher.
Medicare levy and thresholds
The Medicare levy is 2% of your taxable income. The latest single-person thresholds are $28,011 (lower) and $35,013 (upper). If your packaged income falls below $28,011, you pay no levy; between $28,011 and $35,013, you pay a reduced rate. For most full-time workers, the full 2% applies, but a lower taxable income still means a lower dollar amount. For example, packaging $10,000 of salary saves you $200 in Medicare levy alone.
Super and salary sacrifice
Putting pre-tax salary into super is one of the most popular packaging options. Your super fund taxes these contributions at 15%, which is often lower than your marginal rate. The concessional contributions cap for 2026–27 is $32,500, including your employer's 12% super guarantee. Salary-sacrificed super is not a fringe benefit, so no FBT applies. This can be a straightforward way to boost your retirement savings while reducing your taxable income. However, your take-home cash decreases by the sacrificed amount, so you need to ensure you can cover living expenses.
What to watch out for
- FBT: Most packaged benefits attract FBT, calculated at the top marginal rate (47% including Medicare). Your employer may pass this cost to you, reducing the benefit. From 1 April 2027, work-related items like laptops will no longer be exempt from FBT.
- Government benefits: A lower taxable income may affect family tax benefit, child support, or the Medicare levy surcharge. Check before packaging.
- Super guarantee: Your employer must still pay the full 12% super on your original salary, not the reduced amount.
- Timing: You must arrange packaging before you earn the income – you cannot go back and sacrifice after payday.
Is salary packaging worth it for you?
The answer depends on your income, the benefits available, and any fees. Use our Salary packaging guide to compare scenarios, and check the Tax and Medicare page for current rates. For a personalised estimate, try the Take-home pay calculator. Always consider professional tax advice, especially if you have a complex situation.
In summary, salary packaging can increase your fortnightly take-home if you choose benefits that are tax-effective and your employer does not pass on excessive FBT. For most people on middle to high incomes, packaging super or a car with employee contributions is likely worth it. But for lower incomes, the savings may be minimal after costs.
Questions
Does salary packaging reduce my Medicare levy?
Yes, because salary packaging reduces your taxable income, and the Medicare levy is 2% of your taxable income. If your packaged income falls below the single lower threshold of $28,011, you may pay a reduced levy or none at all. For full-time workers, the full 2% usually applies, but a lower taxable income still means a lower dollar amount.
Can I salary sacrifice into super and how does it affect my take-home?
Yes, you can arrange with your employer to sacrifice part of your pre-tax salary into super. These contributions are taxed at 15% inside the fund, which is often lower than your marginal rate. This reduces your taxable income and therefore your pay-as-you-go tax, but your take-home cash decreases by the sacrificed amount. The concessional contributions cap for 2026–27 is $32,500, including your employer's super guarantee.
What happens to fringe benefits tax (FBT) when I salary package?
Most packaged benefits attract FBT, which your employer pays at the top marginal rate plus Medicare levy. This can make some benefits less tax-effective. However, super contributions are exempt from FBT if paid to a complying fund. From 1 April 2027, work-related items like laptops will no longer be exempt from FBT. Always check with your employer what benefits they offer and whether they pass on the FBT cost.