Salary sacrificing explained: How it affects your take-home pay

What is salary sacrificing?

Salary sacrificing (also called salary packaging or total remuneration packaging) is an agreement between you and your employer to receive less before-tax salary in exchange for certain benefits of similar value. Because your taxable income is reduced, you pay less income tax and Medicare levy. The Australian Taxation Office explains that the benefits replace what you would otherwise receive as salary, and there is no restriction on the types of benefits you can include – though many are fringe benefits that may attract FBT for your employer.

How salary sacrificing changes your take-home pay

Your take-home pay is the amount that reaches your bank account after income tax and the Medicare levy. When you salary sacrifice, your taxable income drops, so the tax withheld also drops. But you also lose access to the sacrificed salary – you cannot cash it out. The net effect depends on the value of the benefit and any employee contributions you make to reduce your employer’s FBT.

Example from the ATO

The ATO provides a clear comparison for Sam, who has an annual remuneration of $65,000 in 2025–26. In three scenarios:

1. No salary sacrifice – taxable income $65,000, income tax $10,288, Medicare $1,300, car expenses $11,500. Net disposable income: $41,912.
2. Salary sacrifice of a car (no employee contribution) – salary sacrifice $17,353, taxable income $47,647, tax $5,082, Medicare $953, no car expenses. Net disposable income: $41,612.
3. Salary sacrifice with a $7,000 employee contribution – salary sacrifice $4,145, taxable income $60,855, tax $9,045, Medicare $1,217, employee contribution $7,000. Net disposable income: $43,593.

In scenario 3, the employee contribution reduces the FBT your employer pays, and your net disposable income is actually higher than without packaging. This shows that careful structuring can improve your take-home pay.

Tax rates and Medicare levy for 2026–27

For the 2026–27 income year, Australian resident tax rates (excluding Medicare) 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
• $190,001 and over: $51,370 plus 45c for each $1 over $190,000

Add the Medicare levy of 2% of taxable income for most taxpayers. The latest published single-person Medicare thresholds are $28,011 (lower) and $35,013 (upper). If your taxable income is below $28,011, you pay no Medicare levy; between $28,011 and $35,013, a shading rate of 10c per dollar applies.

Common mix-ups: gross salary, package, and take-home

Many job ads show a total remuneration package that includes super and sometimes salary-sacrificed benefits. Your gross salary is the cash component before tax. Your take-home is what lands in your bank after tax and Medicare. Salary sacrificing sits in between: you swap some gross salary for a benefit, lowering your taxable income but also reducing the cash you receive directly.

For example, the national minimum wage from 1 July 2026 is $26.44 per hour and $1,004.90 per week (annualised $52,255). If you salary sacrifice part of that, your taxable income falls, but your employer still pays super on your ordinary time earnings (12% from 1 July 2026). Your super is not deducted from your take-home; it’s an employer contribution on top.

Things to consider before salary sacrificing

• FBT implications: Your employer may ask you to make an employee contribution to reduce the FBT they pay. This can improve your net position, as shown in the ATO example.
• Impact on government benefits: Salary sacrificing reduces your adjusted taxable income, which may affect child support, some tax offsets, and the Medicare levy surcharge.
• No access to sacrificed salary: You cannot later cash out the benefit. If you do, it becomes salary and is taxed normally.
• Changes from 1 April 2027: Work-related items provided through salary sacrifice will no longer be exempt from FBT.

Use the Clearance tool to estimate your take-home pay under different salary sacrifice scenarios, or check the Benchmarks for typical earnings.