How to salary sacrifice super and boost your take-home pay

How to salary sacrifice super and change your fortnightly take-home

Salary sacrificing super – also called salary packaging – is a way to swap part of your pre-tax salary for extra super contributions. The Australian Taxation Office explains that you and your employer can agree to have some of your salary paid into your super fund instead of to you. This reduces your taxable income, so you pay less income tax and a lower Medicare levy. The result? More money in your bank account each fortnight, while your super grows faster.

What changes your take-home pay: brackets, Medicare and super

Your take-home pay is what lands in your account after tax and the Medicare levy. Three things affect it:

• Tax brackets – For 2026–27, the first $18,200 is tax-free. Then you pay 15c per dollar up to $45,000, 30c per dollar up to $135,000, and so on. The Tax and Medicare guide shows the full rates.
• Medicare levy – Most people pay 2% of their taxable income. The latest single-person thresholds are $28,011 (lower) and $35,013 (upper). If your taxable income is above $35,013, you pay the full 2%.
• Super contributions – Your employer must pay 12% super guarantee on your ordinary time earnings. If you salary sacrifice, those extra contributions are taxed at 15% inside super – much lower than your marginal rate.

How salary sacrificing super works

When you set up a salary sacrifice arrangement, you agree to receive less salary in exchange for your employer paying that amount into your super. The sacrificed amount is not counted as assessable income, so it is not subject to PAYG withholding. The confirms these contributions are employer contributions, not personal ones, and do not reduce your super guarantee entitlement.

Example: Suppose you earn $60,000 a year and salary sacrifice $5,000 into super. Your taxable income drops to $55,000. Using the 2026–27 rates, your income tax (excluding Medicare) falls from about $8,520 to $7,020 – a saving of $1,500. The Medicare levy also drops from $1,200 to $1,100, saving another $100. Your fortnightly take-home increases by roughly $61. Meanwhile, the $5,000 is taxed at 15% inside super ($750) instead of your marginal rate, so your super balance grows more efficiently.

Important limits and rules

• Concessional cap – The total of your employer’s super guarantee and any salary sacrificed contributions cannot exceed $32,500 per year without extra tax. The guide notes this limit.
• Division 293 tax – If your combined income and concessional super contributions exceed $250,000, an additional 15% tax applies.
• No FBT – Salary sacrifice super contributions are not fringe benefits, so your employer avoids fringe benefits tax.

How to set it up

You need to arrange salary sacrifice before you are paid – you cannot do it after earning the income. Talk to your employer or payroll team. Many employers offer this through a formal salary packaging policy. Use the Super topic page to learn more about contribution strategies.

Bottom line

Salary sacrificing super is a tax-effective way to save for retirement while increasing your fortnightly take-home pay. By reducing your taxable income, you pay less income tax and Medicare levy. Just stay within the concessional cap and remember that your employer must still pay the full super guarantee on your original salary.