returning to work after a baby: the financial maths
last updated: march 2026
michael churburgher is a financial planner and father of three from Sydney. he writes about family budgets, tax strategies, and getting the most out of government benefits for mini mode.
the question i get asked more than any other from clients on parental leave is some version of "when do i go back, and for how many days?" the emotional answer is whatever feels right. the financial answer is a spreadsheet — and for a lot of Australian families the spreadsheet says something surprising.
the trap is the effective marginal tax rate on the second earner. when you add income tax, Medicare levy, lost Family Tax Benefit, reduced Child Care Subsidy, and out-of-pocket daycare fees above the CCS hourly cap, the take-home from that fourth or fifth day of work can collapse to 20-30 cents in the dollar.
here's how to run the numbers properly, with three worked scenarios i've used with actual clients in Sydney this year.
the effective marginal tax rate trap
your marginal tax rate is the tax on the next dollar you earn. your effective marginal tax rate includes everything else that gets withdrawn as your income rises: Family Tax Benefit tapers, Child Care Subsidy tapers, the Medicare levy, the Medicare Levy Surcharge once you cross $194,000 family, and in some cases HECS repayments.
for a second earner going from zero to $60,000, that stack can look like this:
- income tax and Medicare levy: roughly 24-32%
- FTB Part B taper: 20 cents per dollar above $6,497 until it zeroes out
- FTB Part A taper: 20 cents per dollar if the combined income crosses $65,189
- CCS taper: 1% for every $5,000 of family income above $85,279
- out-of-pocket daycare above the CCS hourly cap
stack those and it's common to see an effective marginal rate of 70-80% on the fourth and fifth days of work for a two-child family. you are, in effect, buying your job back from the tax and transfer system.
the CCS hourly cap and real daycare fees
Child Care Subsidy subsidises a percentage of your fees up to an hourly rate cap. for 2025-26 the caps are:
| care type | hourly cap | 10-hour day |
|---|---|---|
| centre-based day care | $14.63 | $146.30 |
| family day care | $13.56 | $135.60 |
| outside school hours care | $12.81 | $128.10 |
the problem: most Sydney and Melbourne centres charge $160-$200 per day. every dollar above the cap receives zero subsidy. on a $180/day centre, $33.70 per day is full-price no matter what your CCS percentage is. at 4 days a week that's $7,000 a year of pure out-of-pocket.
this is why the "90% subsidy" headline is misleading. 90% of the cap, not 90% of what you actually pay.
three worked scenarios
same household in all three: partner earns $120,000, second earner was on $95,000 pre-baby, one child aged 14 months, Sydney centre charging $170/day.
scenario 1: full-time return (5 days)
| line item | annual |
|---|---|
| gross salary (second earner) | $95,000 |
| income tax + Medicare levy | -$22,788 |
| daycare fees (5 days × 48 weeks × $170) | -$40,800 |
| CCS received (family income $215K, ~50% of cap) | +$17,556 |
| FTB A and B | $0 |
| net take-home | $48,968 |
scenario 2: 3-day return (pro-rata $57,000)
| line item | annual |
|---|---|
| gross salary | $57,000 |
| income tax + Medicare levy | -$9,912 |
| daycare (3 days × 48 × $170) | -$24,480 |
| CCS (family income $177K, ~63% of cap) | +$13,270 |
| FTB Part B (partial) | $0 |
| net take-home | $35,878 |
going from 3 days to 5 days costs an extra $38,000 in gross pay but only delivers $13,090 in extra take-home. the effective marginal rate on days 4 and 5 is about 66%. a lot of clients decide they'd rather keep those two days.
scenario 3: part-time with $15K salary sacrifice to super
same 3-day return, but sacrifice $15,000 into super. cash salary drops to $42,000 but super grows by $12,750 after the 15% contributions tax. note: salary sacrifice does not reduce your adjusted taxable income for CCS purposes — Services Australia adds reportable super contributions back in. so CCS stays the same, but the income tax saving is real.
| line item | annual |
|---|---|
| cash salary | $42,000 |
| income tax + Medicare levy | -$4,617 |
| daycare (3 days) | -$24,480 |
| CCS | +$13,270 |
| extra super (net of 15% tax) | +$12,750 |
| net cash + super value | $38,923 |
this is the version i recommend most often. you keep the 3-day cadence, you use the super concessional cap ($30,000 for 2025-26) to rebuild retirement savings that went backwards during leave, and you shave roughly $5,300 off the tax bill.
the levers worth pulling
four things to think about before you lock in a return date:
- use all your Paid Parental Leave. $915.80/week for 26 weeks is $23,810, now with 12% super on top from July 2025. flexible PPL lets you draw it one day at a time around a phased return
- time the return around the financial year. starting back in May means you squeeze a few weeks of pay into a low-income year, pushing the full-income year into 2026-27
- keep making super contributions during leave. the primary carer's super is the single biggest casualty of career breaks. spouse contributions or the government co-contribution can help
- negotiate 4 days at 5-day pay with a compressed week. rare but not impossible, and bypasses most of the CCS hourly cap problem
frequently asked questions
is it worth returning to work full-time after a baby?
not always. once you stack tax, lost FTB, CCS tapers and out-of-pocket daycare, the take-home from days 4 and 5 often collapses to 20-30 cents in the dollar. 3 days is where the maths peaks for many Sydney and Melbourne families.
does the Child Care Subsidy cover all my daycare fees?
no. CCS is capped at $14.63/hour for centre-based care. centres charging $17-20/hour leave a gap that comes straight out of pocket regardless of your subsidy percentage.
can salary sacrificing to super increase my CCS?
no. Services Australia adds reportable super contributions back into adjusted taxable income. salary sacrifice still saves income tax and rebuilds super, which is the real win.
should i use up all my PPL before returning?
usually yes. PPL is $915.80/week for 26 weeks and includes 12% super from July 2025. flexible PPL also lets you draw days around a phased return.
run your own numbers
every family's tax-and-transfer stack is different. the calculator will show you your CCS percentage, FTB entitlements, and out-of-pocket fees for the days and centre you're considering.