How Salary Packaging Plus Changes Your Take-Home Pay

How Salary Packaging Plus Changes Your Take-Home Pay

Salary packaging plus – also called salary sacrificing – lets you swap part of your pre-tax salary for benefits your employer provides. The result? A lower taxable income, less income tax and Medicare levy, and more money in your pocket each fortnight. But the exact amount depends on your salary, the benefits you choose, and how your employer handles fringe benefits tax (FBT).

What Salary Packaging Plus Means for Your Fortnightly Pay

When you enter a salary packaging arrangement, you agree to receive less cash salary before tax. Your employer uses that amount to pay for benefits like a car, phone, or super contributions. Because your taxable income drops, the tax withheld from your pay also drops. The Australian Taxation Office explains that a salary sacrifice arrangement reduces your taxable income, meaning you may pay less tax on your income .

For example, if your annual salary is $65,000 and you package a car worth $17,353, your taxable income falls to $47,647. Using the 2026–27 tax rates (with the Low Income Tax Offset), your income tax drops from about $10,288 to $5,082, and your Medicare levy falls from $1,300 to $953. Your net disposable income after paying car expenses can actually be higher than if you didn't package – the ATO's example shows $43,593.40 with employee contributions versus $41,912.00 without packaging.

The Role of Fringe Benefits Tax and Employee Contributions

Most packaged benefits are fringe benefits, and your employer must pay FBT on their taxable value. To make packaging worthwhile, your employer may ask you to make employee contributions from your after-tax pay. These contributions reduce the FBT your employer owes, and they can boost your net disposable income. The ATO illustrates this with a car benefit: without employee contributions, your net disposable income is $41,611.96; with $7,000 in contributions, it rises to $43,593.40.

From 1 April 2027, work-related items like laptops and phones provided through salary sacrifice will no longer be FBT-exempt, so check with your employer on what's available now.

How Salary Packaging Plus Affects Your Super

Salary sacrificing into super is a popular form of salary packaging plus. These contributions are treated as employer contributions and are taxed at just 15% inside your super fund – often lower than your marginal rate. They count towards the concessional contribution cap of $32,500 for 2026–27 (including your employer's super guarantee). Your employer must still pay the super guarantee on your original salary, so packaging super can accelerate your retirement savings without reducing your take-home pay as much as you might think.

Medicare Levy and Thresholds

The Medicare levy is 2% of your taxable income. For 2026–27, the latest published single-person Medicare thresholds are $28,011 and $35,013. If your taxable income after packaging falls below $28,011, you pay no Medicare levy. Between $28,011 and $35,013, you pay a shading rate of 10 cents per dollar over the lower threshold. Full-time salaries typically exceed these thresholds, so you'll pay the full 2% on your reduced taxable income – still less than without packaging.

What Changes Your Fortnightly Take-Home

Your fortnightly take-home pay is what lands in your bank account after income tax and Medicare levy are withheld. Salary packaging plus changes this by reducing the tax withheld. But remember:

• Super guarantee (12% from 1 July 2026) is paid by your employer on your original salary, not your packaged salary. It doesn't come out of your take-home pay.
• Employee contributions reduce your take-home pay but can lower your employer's FBT, potentially increasing your net disposable income overall.
• Reportable fringe benefits may appear on your income statement and could affect government benefits, child support, or the Medicare levy surcharge.

Is Salary Packaging Plus Right for You?

It depends on your income, the benefits available, and any associated costs. notes that salary packaging might help you pay less income tax, but whether it's worth it depends on your income and the benefits offered . For example, packaging a car or super can be tax-effective, but packaging everyday expenses like school fees may not save you much after FBT.

Use the Take-home pay calculator on this site to estimate your fortnightly pay with and without packaging. You can also check the Salary packaging guide for more details on common benefits and FBT rules.

Key Takeaways

• Salary packaging plus reduces your taxable income, so you pay less income tax and Medicare levy.
• Your fortnightly take-home pay increases, but employee contributions may offset some of that gain.
• Super contributions through salary sacrifice are tax-effective and count toward your concessional cap.
• Always consider the impact on government benefits and the Medicare levy surcharge.

This estimate is not a tax assessment. For personalised advice, consult a tax professional or use the ATO's online tools.