Is salary sacrifice worth it? How to work out what clears after tax
Your take-home pay after salary sacrifice depends on your income, the benefits you choose, employer FBT, and any employee contributions.
Understanding salary sacrifice and your take-home pay
Salary sacrifice – also called salary packaging – lets you swap part of your pre-tax salary for a benefit such as a car, laptop, or extra super contributions. The amount you sacrifice is not included in your taxable income, so you pay less income tax and Medicare levy. But your employer may have to pay fringe benefits tax (FBT) on the benefit, which can reduce the overall saving.
As explains, salary packaging is usually more effective for people on middle to high incomes because their marginal tax rate is higher. For example, if you earn $100,000 and package a $15,000 car benefit, your taxable income drops to $85,000. You pay less tax, but your employer pays FBT on the car.
How salary sacrifice affects your after-tax income
The Australian Taxation Office provides a clear example for the 2025–26 year. Sam earns $65,000 annually. In three scenarios – no packaging, packaging a car without employee contributions, and packaging with employee contributions – the net disposable income changes significantly.
- No packaging: taxable income $65,000, income tax $10,288, Medicare $1,300, car expenses $11,500. Net disposable income: $41,912.
- Packaging without employee contributions: salary sacrifice $17,353, taxable income $47,647, tax $5,082, Medicare $953. No car expenses (employer pays). Net disposable income: $41,612 – slightly less.
- Packaging with employee contributions: salary sacrifice $4,145, employee contribution $7,000, taxable income $60,855, tax $9,045, Medicare $1,217. Net disposable income: $43,593 – a clear gain.
This table from shows that making an employee contribution can reduce the FBT your employer pays, and you end up with more cash in hand.
Is salary sacrifice worth it for you?
To answer the question is salary sacrifice worth it, consider these factors:
- Your marginal tax rate: The higher your rate, the more you save on tax. For 2026–27, rates are 15c per $1 over $18,200 up to $45,000, then 30c up to $135,000, then 37c up to $190,000, then 45c above. Sacrificing $1 saves you that many cents in tax plus 2c Medicare.
- FBT and employee contributions: Some benefits (like cars) attract FBT. Your employer may ask you to make an after-tax contribution to reduce their FBT bill. As the ATO example shows, this can improve your net position.
- Impact on tax offsets: The Low Income Tax Offset (LITO) phases out between $37,500 and $66,667. Reducing your taxable income could increase your LITO, but be careful not to push it too low.
- Medicare levy surcharge: If your reportable fringe benefits plus income exceed $90,000 (single) or $180,000 (family) and you lack private hospital cover, you pay an extra 1%–1.5%. Salary sacrifice can affect this.
- Super guarantee: Your employer must still pay the 12% super guarantee on your original salary, not the sacrificed amount. So your super grows as if you hadn't sacrificed.
Moneysmart notes that you need to arrange your salary package before you get paid – you cannot sacrifice after earning the income. Also, from 1 April 2027, work-related items provided through salary sacrifice will no longer be FBT-exempt, so the value of packaging laptops or tools may change.
Key considerations before you start
- You must have a written agreement with your employer before you perform the work.
- You cannot access the sacrificed salary – if you don't use the benefit, it becomes salary and is taxed normally.
- Salary sacrifice can affect your Take-home pay calculations, especially if you are near the Medicare levy thresholds ($28,011 and $35,013 for singles).
- Use our Salary packaging guide and Tax and Medicare page to estimate your after-tax income.
Ultimately, whether salary sacrifice is worth it depends on your income, the benefits available, and how your employer structures FBT. The ATO advises seeking financial advice before entering an arrangement. For most full-time workers on average earnings ($108,352 for full-time ordinary time according to ABS), packaging a car or extra super can be beneficial – but run the numbers first.
Questions
How does salary sacrifice reduce my taxable income?
You and your employer agree to swap part of your pre-tax salary for a benefit like a car or super. That amount is not included in your taxable income, so you pay less income tax and Medicare levy. Your employer may pay fringe benefits tax (FBT) on the benefit, which can affect the net value to you.
Can salary sacrifice affect my Medicare levy or surcharge?
Yes. Because your taxable income drops, you may pay less Medicare levy (2% of taxable income). However, if your reportable fringe benefits push your income above the Medicare levy surcharge threshold and you don't have private hospital cover, you could face an extra 1%–1.5% levy. The ATO warns that salary sacrifice can also affect child support, study loan repayments, and some government benefits.
Is salary sacrifice always worth it?
Not always. It works best if your marginal tax rate is high and your employer offers benefits with low FBT or allows employee contributions to reduce FBT. The Australian Taxation Office shows that with the right structure, your net disposable income can increase. But you must set up the arrangement before you earn the income, and you cannot access the sacrificed amount. Seek professional advice for your situation.