Paye Calculator KRA: How to Calculate PAYE in Kenya
Learn how to calculate and understand PAYE in Kenya, the taxation system that collects income tax from employed individuals. A comprehensive guide to help you navigate the process
Are you a working individual in Kenya? Are you curious how your income tax is calculated and deducted from your salary? Pay As You Earn (PAYE) is the taxation system in Kenya that collects income tax from employed individuals. In this comprehensive guide, we will walk you through everything you need to know about calculating PAYE in Kenya, ensuring you understand how it works and how it affects your earnings.
Key Takeaways
- PAYE is a taxation system that collects income tax from employed individuals in Kenya.
- Employers are required to register for PAYE and deduct tax from employees' salaries.
- Taxable benefits include non-cash benefits employers provide, while some are non-taxable.
- Calculating PAYE involves several steps, including determining gross and net taxable income.
- PAYE returns must be filed online, and payments can be made via banks or Mpesa.
- Penalties apply for late filing and payment of PAYE.
What is PAYE?
PAYE, or Pay As You Earn, is a method the Kenyan government employs to collect income tax from employed individuals. This tax is deducted directly from an employee's salary by the employer and then remitted to the Kenya Revenue Authority (KRA) regularly. PAYE aims to ensure a consistent and efficient way of collecting income tax, contributing to the government's revenue for public services and development.
Who is Eligible for PAYE Registration?
Any employer in Kenya who pays payments to employees is required to register for PAYE. As an employer, you must deduct the appropriate tax amount from your employee's salaries and wages based on the prevailing tax rates. This tax is then remitted to the KRA by the 9th of the following month.
Understanding Taxable and Non-Taxable Benefits
PAYE applies to employment income of Kshs. 24,000 and above per month. Additionally, certain non-cash benefits provided to employees are also considered taxable, such as the provision of a motor vehicle by an employer, housing provided by the employer, and loans with interest rates lower than the market rate. On the other hand, some benefits, like meals up to Ksh 4,000 per month, night-out allowances, and reimbursement of expenses, are not considered taxable income.
Calculating PAYE
Calculating PAYE involves several steps to determine the tax amount that should be deducted from an employee's salary. The calculation takes into account various income brackets and tax rates. Here's how you can calculate PAYE:
- Compute the total compensation received by the employee, including cash and non-cash benefits.
- Calculate the gross taxable income by summing up basic pay, allowances, and benefits.
- Determine the net taxable income by subtracting permissible deductions, such as retirement contributions and owner-occupied interest, from the gross taxable income.
- Apply the applicable tax rates to the net taxable income based on the tax bands provided by KRA.
- Calculate the gross PAYE by multiplying the tax rate by the net taxable income.
- Deduct tax reliefs, including personal and insurance relief, from the gross PAYE to obtain the net PAYE.
PAYE is computed as shown below:
Individual Tax Bands and Rates
The following tax rates shall apply to individual employment income with effect from 1st July 2023. The first return under the new rate shall be due by the 9th August 2023.
| Tax Bands | Annual | Monthly | Rates |
| On the first | Shs. 288,000 | Shs. 24,000 | 10% |
| On the next | Shs. 100,000 | Shs. 8,333 | 25% |
| On the next | Shs. 5,612,000 | Shs. 467,667 | 30% |
| On the next | Shs. 3,600,000 | Shs. 300,000 | 32.5% |
| On all income in excess of | Shs. 9,600,000 | Shs. 32,333 | 35% |
Personal relief of Kshs. 28,800 per annum (Kshs. 2,400 per month)
On pensions the new tax rates are:
| Pension Tax Bands | Annual Tax Rates |
| Any amount in excess of tax free amounts: | |
| On first 400,000 | 10% |
| On next 400,000 | 15% |
| On next 400,000 | 20% |
| On next 400,000 | 25% |
| On any amount in excess of Kshs 1,600,000 | 30% |
For example:
|
Rates Effective - 01.01.2021 |
|
|
Gross Income from Employment |
115,000 |
|
Less allowable Deductions |
|
|
Mortgage Interest |
15000 |
|
Pension Contribution by Employee |
5,000 |
|
Taxable Pay |
95,000 |
|
First |
24,000*10% =2,400 |
|
Next |
8,333*25% =2,083.25 |
|
Next
|
|
|
Above |
(95,000-32333) 62,667*30%=18800 |
|
Total tax = 2400+2083.25+18800 = 23283,25 |
|
|
Less |
|
|
Monthly Personal Relief |
2400 |
|
Insurance Relief |
0 |
|
Tax Payable |
20,883.25 |
You can also use the PAYE Calculator to determine Tax Payable.
Filing for PAYE
PAYE returns are submitted online via the iTax platform. Employers must file returns by the 9th of the following month, even if the PAYE amount is zero. Failure to file on time can result in penalties.
Making PAYE Payments
After filing the return online, employers must generate a payment slip via iTax and make payments to KRA-appointed banks. Payment can also be made via mobile money using the KRA Pay Bill number.
Penalties for Late Filing and Payment
Late filing and payment of PAYE can lead to penalties. The penalty for late filing is the higher of 25% of the tax due or Ksh 10,000. The penalty for late payment is 5% of the tax due, plus an additional 1% per month on the unpaid tax.
Emerging Issues and Considerations
Stay informed about emerging issues related to PAYE, such as the distinction between an employee and a consultant, and changes in tax regulations. Ensure that you accurately classify and report employee income to avoid non-inclusion of taxable benefits.
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Conclusion
Understanding how PAYE is calculated and affects your income is essential for every working individual in Kenya. By following the guidelines in this article, you can ensure that you comply with the tax regulations and contribute to the nation's development while managing your finances effectively. Remember that accurate and timely filing of PAYE is crucial to avoid penalties and maintain good standing with the tax authorities.
Frequently Asked Questions (FAQs)
What is PAYE in Kenya?
PAYE stands for Pay As You Earn, a taxation system that collects income tax from individuals who are employed in Kenya. Employers deduct the tax from employees' salaries and remit it to the Kenya Revenue Authority (KRA).
Who is eligible for PAYE registration?
Any employer who pays payments to employees is required to register for PAYE. This includes deducting tax from employees' salaries and remitting it to KRA on their behalf.
What benefits are considered taxable for PAYE?
Certain non-cash benefits provided by employers are considered taxable for PAYE. These include motor vehicle provision, housing, loans with lower interest rates, and more. However, benefits like meals, night-out allowances, and expense reimbursements are not taxable.
How is PAYE calculated in Kenya?
PAYE is calculated by determining the net taxable income of an employee and applying the relevant tax rates based on income brackets. Tax reliefs, including personal and insurance relief, are deducted to reach the net PAYE amount.
How do I file for PAYE in Kenya?
PAYE returns are filed online through the iTax platform. A NIL return must still be submitted if there's no PAYE to declare.
What are the penalties for late PAYE filing and payment?
Late filing can result in a penalty of 25% of the tax due or Kshs. 10,000, whichever is higher. Late payment incurs a penalty of 5% of the tax due plus an additional 1% per month on the unpaid tax until settled.
Complying with PAYE regulations is essential to avoid penalties and ensure accurate tax contributions. Always stay informed about changes in tax laws and deadlines.
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