tax tips for two-income families with kids
last updated: november 2025
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.
when both parents work, the household brings in more money — but you also hit income thresholds faster. the Child Care Subsidy tapers off above $83,280. Family Tax Benefit Part A reduces above $61,372. private health rebates shrink above $180,000.
the tax system and the family payments system don't always talk to each other cleanly. but there are legitimate ways to structure things so you keep more of what you earn.
understanding adjusted taxable income
most family payments — including the Child Care Subsidy and Family Tax Benefit — use Adjusted Taxable Income (ATI) rather than plain taxable income. ATI includes your taxable income plus a few extras:
- reportable fringe benefits
- reportable employer super contributions (salary sacrifice into super)
- total net investment losses (negative gearing)
- tax-free foreign income
- certain tax-free pensions or benefits
this matters because salary sacrificing into super — which many two-income families do — gets added back into your ATI. so while it reduces your taxable income and the tax you pay, it may not reduce your CCS or FTB income test figure.
the combined ATI for both parents is what Services Australia uses to determine your family payment rates. use our CCS calculator to see how your combined income affects your subsidy rate.
super contributions to reduce ATI
here's where it gets interesting. while salary sacrifice super contributions are added back to ATI, personal concessional contributions that you claim as a tax deduction work differently.
if you make personal super contributions (outside of salary sacrifice) and claim them as a deduction on your tax return, this reduces your taxable income. since taxable income is the base component of ATI, this can genuinely lower your ATI — provided you don't have offsetting items being added back.
the concessional super cap for 2025-26 is $30,000 per person. this includes employer contributions (SG at 12%), salary sacrifice, and personal deductible contributions. if your employer contributes $12,000 in SG, you have $18,000 of cap space left for personal contributions.
for a family sitting just above a CCS threshold, putting a few thousand into personal super contributions can be worth hundreds in additional subsidy over the year. run the numbers through our CCS calculator to see the impact.
which parent claims what
some payments are income-tested on the individual, others on the family. knowing the difference matters.
| payment / benefit | income test basis |
|---|---|
| Child Care Subsidy | combined family ATI |
| Family Tax Benefit Part A | combined family ATI |
| Family Tax Benefit Part B | primary earner must be under $117,194; secondary earner income tested separately |
| private health rebate | combined family income |
| Medicare Levy Surcharge | combined family income |
for CCS and FTB Part A, it doesn't matter which parent claims — the rate is based on combined income either way. for FTB Part B, the lower earner's income is the one that matters most, since Part B reduces once the secondary earner makes more than $6,497 per year and cuts out at $117,194 for the primary earner.
check your FTB entitlement with our Family Tax Benefit calculator.
private health insurance and the MLS
the Medicare Levy Surcharge (MLS) hits families with a combined income over $180,000 who don't hold private hospital cover. the surcharge ranges from 1% to 1.5% of taxable income depending on the bracket.
for two-income families, it's often cheaper to hold a basic hospital policy than pay the surcharge. a bare-bones family hospital policy runs around $2,500-$3,500 per year — whereas the MLS on a combined income of $200,000 would be $2,000+ with no health cover to show for it.
the private health insurance rebate also reduces in tiers above $180,000. at 2025-26 rates:
- up to $180,000: full rebate (24.608% for under 65s)
- $180,001 to $210,000: 16.405% rebate
- $210,001 to $360,000: 8.202% rebate
- above $360,000: no rebate
work-related deductions that add up
when both parents work, there are twice as many potential deductions. commonly overlooked ones for working parents:
- work from home expenses— the ATO's fixed rate method allows 67 cents per hour for 2025-26. if one parent works from home two days a week, that's roughly $2,500 in deductions over the year
- self-education — courses, conferences, and study materials related to your current job are deductible
- union fees and professional memberships — these are fully deductible and often forgotten
- income protection insurance — premiums paid outside super are tax deductible
reducing taxable income through legitimate deductions flows through to your ATI, which can nudge you into a better bracket for CCS and FTB. every dollar of deduction counts twice — less tax paid and potentially more subsidy received.
frequently asked questions
can salary sacrificing into super reduce my CCS income test?
salary sacrifice amounts are added back into ATI, so they don't reduce your CCS income test. however, personal concessional super contributions claimed as a tax deduction can reduce taxable income, which is the base of ATI.
which parent should claim the Child Care Subsidy?
CCS is based on combined family income, so the rate is the same regardless of which parent claims. only one parent can be the claimant, and they need to be linked to the childcare enrolment through Centrelink.
does the private health rebate change based on family income?
yes. the full rebate applies up to $180,000 combined family income. above that, it reduces in tiers and phases out entirely above $360,000.
next steps
two-income families have more levers to pull than they realise. the interaction between tax deductions, super contributions, and family payment thresholds means small changes can have an outsized effect on your bottom line.