Can you salary sacrifice childcare fees? How it affects your take-home pay
The pay varies depending on your salary, the amount sacrificed, and your employer's fringe benefits tax arrangements.
Can you salary sacrifice childcare fees?
Yes, you can salary sacrifice childcare fees. The Australian Taxation Office confirms that paying your expenses, such as childcare costs, is a common fringe benefit you can include in a salary sacrifice arrangement. Your employer agrees to pay for the childcare instead of giving you that amount as salary, which reduces your taxable income.
However, the ATO also makes clear that you cannot claim a tax deduction for childcare expenses you pay yourself. Childcare is a private expense, not directly connected to earning your employment income. Salary sacrificing is a different way to pay for it – your employer pays the fees, and you forgo part of your pre-tax salary.
How salary sacrificing childcare fees affects your tax and Medicare levy
When you enter an effective salary sacrifice arrangement, the sacrificed amount is not included in your assessable income. This lowers the income tax you pay under the 2026–27 resident tax rates. For example, if you earn $65,000 and sacrifice $4,145 for childcare, your taxable income drops to $60,855. You also pay less Medicare levy (2% of taxable income) because your taxable income is lower.
The Medicare levy has special thresholds for low-income earners. The latest single-person thresholds are $28,011 and $35,013. If your taxable income after salary sacrifice falls below $28,011, you pay no Medicare levy. Between $28,011 and $35,013, a shading-in applies. Full-time employees on the minimum wage of $26.44 per hour ($1,004.90 per week) earn about $52,255 annually, so they pay the full 2% Medicare levy unless they salary sacrifice a significant amount.
How salary sacrificing childcare fees affects the Child Care Subsidy
The Department of Social Services Family Assistance Guide explains that if your employer is liable for all or part of the childcare fees through salary sacrifice, no Child Care Subsidy (CCS) or Additional Child Care Subsidy (ACCS) is payable for that part. CCS is only payable on the fees you are genuinely liable to pay. This means salary sacrificing can reduce your eligibility for government childcare assistance. You should factor this into your comparison of job offers.
Comparing job offers with salary packaging
When you compare two job offers, look at the amount that reaches your bank account after tax and the Medicare levy, not just the gross salary. If one offer allows you to salary sacrifice childcare fees, your take-home pay may be higher even if the gross salary is lower. Use the Take-home pay guide to estimate your net income. Also check whether the employer pays fringe benefits tax or asks for an employee contribution. The Salary packaging topic has more details on how to evaluate packages.
Remember that salary sacrificed super contributions are separate – your employer must still pay the super guarantee (12% from 1 July 2026) on your ordinary time earnings, not on the sacrificed amount. Super is not deducted from your take-home pay in most job ads.
Key points to remember
- You can salary sacrifice childcare fees as a fringe benefit.
- It reduces your taxable income and tax, but may reduce CCS eligibility.
- Your employer may need to pay FBT, and they might ask you to make an employee contribution.
- Always compare net disposable income, not gross salary.
- The minimum wage is $26.44 per hour or $1,004.90 per week – use that as a baseline if you are on award wages.
For a full breakdown of tax rates and Medicare thresholds, see the Tax and Medicare page. To estimate your own take-home pay, try the Clearance tool.
Questions
Can you salary sacrifice childcare fees and still get the Child Care Subsidy?
Yes, but only on the portion of fees you are genuinely liable to pay. If your employer pays part of the fees through salary sacrifice, no CCS or ACCS is payable for that part. The Australian Department of Social Services explains that CCS only applies to fees you are personally responsible for.
Does salary sacrificing childcare fees reduce your taxable income?
Yes. Under an effective salary sacrifice arrangement, the sacrificed amount is not included in your taxable income. The Australian Taxation Office shows that this lowers the income tax and Medicare levy you pay. However, your employer may need to pay fringe benefits tax (FBT) on the benefit, and they might ask you to make an employee contribution to reduce that FBT.
How does salary sacrificing childcare affect your take-home pay compared to paying after tax?
Salary sacrificing childcare fees can increase your net disposable income if the tax saved outweighs any employee contributions. For example, the ATO illustrates a scenario where an employee earning $65,000 who salary sacrifices a car with employee contributions ends up with $43,593 net disposable income, compared to $41,912 without packaging. The exact benefit depends on your marginal tax rate, the FBT liability, and any employee contributions.