How salary packaging solutions affect your take-home pay in Australia

How salary packaging solutions change what you take home

When you look at a job offer, the headline salary is only part of the picture. What actually lands in your bank account depends on tax, the Medicare levy, and any salary packaging solutions you use. Salary packaging – also called salary sacrifice – lets you swap some of your pre-tax income for benefits like a car, super contributions, or childcare. Because your taxable income drops, you may pay less tax and keep more of your earnings.

The Australian Taxation Office explains that a salary sacrifice arrangement reduces your taxable income, meaning you may pay less tax on your income. There is no restriction on the types of benefits you can include, but your employer may have to pay fringe benefits tax (FBT) on some of them.

A worked example: $65,000 salary with a car

The ATO provides a clear comparison for an employee earning $65,000 annually. Without packaging, you pay income tax of $10,288 and Medicare levy of $1,300, then cover car expenses of $11,500 from after-tax income. Your net disposable income is $41,912.

If you salary sacrifice a car worth $17,353 (the full cost), your taxable income falls to $47,647. Tax drops to $5,082.10 and Medicare to $952.94. But because the car is a fringe benefit, your employer pays FBT, and you have no employee contribution. Your net disposable income is $41,611.96 – slightly less than without packaging.

However, if you make an employee contribution of $7,000 to reduce the FBT, the picture improves. Your taxable income is $60,855, tax is $9,044.50, Medicare is $1,217.10, and you pay the $7,000 contribution. After deducting the contribution, your net disposable income is $43,593.40 – that's $1,681.44 more than without packaging.

This example shows that salary packaging solutions can boost your take-home pay, but the benefit depends on the structure and any employee contributions.

How tax and the Medicare levy are calculated

For the 2026–27 tax year, the tax rates for Australian residents are:

• $0–$18,200: Nil
• $18,201–$45,000: 15c for each $1 over $18,200
• $45,001–$135,000: $4,020 plus 30c for each $1 over $45,000
• $135,001–$190,000: $31,020 plus 37c for each $1 over $135,000
• Over $190,000: $51,370 plus 45c for each $1 over $190,000

Most people also pay the Medicare levy of 2% of taxable income. The latest published single-person Medicare thresholds are $28,011 and $35,013. If your taxable income is below $28,011, you pay no Medicare levy. Between $28,011 and $35,013, the levy is phased in at 10c per dollar over the lower threshold. Above $35,013, you pay the full 2%.

What salary packaging means for your super

Salary sacrificed super contributions are treated as employer contributions and are not subject to FBT. Your employer must still pay the super guarantee (12% from 1 July 2026) on your full salary as if there were no sacrifice. This means you can boost your super without losing your employer's compulsory contributions. However, total concessional contributions (including super guarantee and salary sacrifice) are capped at $32,500 per year for 2026–27. Going over may incur extra tax.

Minimum wage and typical earnings

For context, the national minimum wage from 1 July 2026 is $26.44 an hour and $1,004.90 a week. If you work full-time (38 hours per week, 52 weeks), that's an annual salary of $52,255. At that level, salary packaging solutions might still be worthwhile, but the tax savings are smaller because you're in the 15c bracket above $18,200. The average full-time adult ordinary time earnings are $2,083.70 per week ($108,352 per year), where packaging can deliver more significant tax benefits.

Key considerations before you package

• Fringe benefits tax: Your employer may pass on the cost of FBT through reduced salary or ask for an employee contribution. Always check the net benefit.
• Impact on government benefits: Salary packaging reduces your taxable income, which could affect family tax benefit, child support, and study loan repayments.
• Medicare levy surcharge: If your income for surcharge purposes (including reportable fringe benefits) exceeds the threshold and you don't have appropriate private hospital cover, you may pay an extra 1% to 1.5%.
• No double-dipping: You cannot claim a tax deduction for expenses your employer pays as part of the package.
• Effective date: The arrangement must be in place before you earn the income. You cannot sacrifice salary after you've been paid.

Using salary packaging solutions wisely

Salary packaging is a legitimate way to reduce tax and increase your take-home pay, but it's not a one-size-fits-all solution. The best approach depends on your income, the benefits your employer offers, and your personal financial goals. Use the Salary packaging guide on this site to explore more scenarios, and check the Tax and Medicare page for current rates and thresholds.

Remember: the examples here are estimates, not a tax assessment. Always consult a qualified tax professional or use the ATO's tools to model your own situation.