Salary Sacrifice Childcare Fees and Your Take-Home Pay
Salary sacrifice for childcare fees is a common arrangement where you agree to forgo part of your pre-tax salary in exchange for your employer paying your childcare costs. This reduces your taxable income, which can lower the amount of tax and Medicare levy you owe. The result is that you keep more of your earnings compared to paying for childcare from after-tax dollars.
How It Relates to the Full-Time Average
The national full-time adult ordinary-time average is $2,083.70 per week, or about $108,352 per year (ABS Average Weekly Earnings, May 2026, multiplied by 52). This is the benchmark used on this site to show where your pay sits. If you earn at or above this average, salary sacrificing for childcare can be particularly effective because you are likely in the 30% or 37% marginal tax bracket (plus 2% Medicare). Every dollar you sacrifice saves you that marginal rate in tax.
For example, if you earn the full-time average and sacrifice $10,000 for childcare, your taxable income drops to about $98,352. You would pay less tax and Medicare, increasing your net pay. The exact saving depends on your individual circumstances, but it can be substantial.
A Resident Take-Home Sketch
Using the 2026–27 resident tax rates (nil to $18,200; 15% to $45,000; 30% to $135,000; 37% to $190,000; 45% above that, plus 2% Medicare), a person on the full-time average without salary sacrifice would have a taxable income of $108,352. After tax and Medicare, their net pay is roughly $83,000 (this is an approximation; the exact figure depends on offsets and deductions).
If that same person salary sacrifices $15,000 for childcare, their taxable income falls to $93,352. The tax saved is about $4,500 (30% of $15,000 plus 2% Medicare), meaning their net pay after tax is higher by that amount. They also receive the childcare benefit without using after-tax dollars.
Other Benchmarks
The full-time median is about $90,532, and the all-employees median is about $74,100 (ABS Employee earnings, August 2025). These are lower than the average, so salary sacrifice may still be beneficial but the tax saving is smaller if you are in the 15% or 30% bracket. The national minimum wage from 1 July 2026 is $26.44 per hour, $1,004.90 per week, or about $52,255 per year on 38 hours (Fair Work). At this level, salary sacrifice for childcare may not be as advantageous because the tax saved is only 15% plus Medicare, and the sacrificed amount reduces an already low income.
State Averages
Full-time averages vary by state. For instance, the Australian Capital Territory has the highest at about $119,090, while Tasmania has the lowest at about $96,008. If you live in a higher-average state, salary sacrifice for childcare can yield greater tax savings because you are more likely to be in a higher tax bracket. See States and territories for more details.
Practical Considerations
To set up salary sacrifice for childcare, you need a formal arrangement with your employer. The ATO caps the amount that can be sacrificed without incurring fringe benefits tax (the cap is not specified in the on-site notes but is typically around $15,900 per year for 2026–27). Any amount above the cap may be subject to FBT, which could reduce the benefit. You should also consider that salary sacrifice reduces your gross income for purposes like superannuation contributions, loan applications, and some government benefits.
Where to See Your Pay on the Line
You can Place a salary on the line to see how your pay compares to the full-time average, medians, and minimum wage. The tool shows your weekly and hourly amounts based on a 38-hour week, and the distance from the average. If you are considering salary sacrifice for childcare, you can enter your pre-sacrifice salary to see where you stand, then adjust for the sacrificed amount.
For more guidance on salary packaging and other pay topics, visit the Guides section.
Summary
Salary sacrifice childcare fees can improve your take-home pay by reducing your taxable income. The benefit is greatest for those earning at or above the full-time average of $108,352, especially in higher tax brackets. Always check the current ATO cap and your employer’s policy before entering an arrangement.