Starting your first job can be an exciting milestone, but it also comes with the responsibility of understanding your salary and deductions. In Kenya, one of the primary deductions from your salary is Pay As You Earn (PAYE), which is a tax on employment income. In this article, we will explore how PAYE is calculated using the example of John Gitau, who has just landed his first job with a monthly salary of Ksh25,000.
While you might see a gross pay of 25,000 KES on your payslip, there are other contributions and deductions before you receive your net pay.
John’s Pay Slip Breakdown:
| Description | Amount (KES) | Explanation |
| Basic Pay | 25,000.00 |
This is your total salary before any deductions.
|
| NSSF Contribution | 1,500.00 |
This is your monthly contribution to the National Social Security Fund (NSSF). It provides you with retirement benefits.
|
| Taxable Pay | 23,500.00 |
This is your basic pay minus the NSSF contribution. It's the amount used to calculate your income tax.
|
| Income Tax | 2,350.00 |
This is the estimated amount of income tax payable to KRA based on your taxable income. Note: The actual amount of tax may vary slightly depending on your specific circumstances.
|
| Tax Reliefs |
These are deductions that reduce your tax liability. Common reliefs include:
|
|
| – Insurance Relief (15% of NHIF) | -127.5 |
Reduces your tax by 15% of your monthly NHIF contribution.
|
| – AHL Relief (15% of Housing Levy) | -56.25 |
Reduces your tax by 15% of your monthly Housing Levy contribution.
|
| Total Tax Reliefs | -183.75 |
Total tax reliefs deducted from your income tax.
|
| PAYE (Tax Payable) | 0 |
This is your income tax minus tax reliefs. In this example, with reliefs offsetting the entire income tax amount, your PAYE would be zero. However, this may not always be the case.
|
| Net Pay | 23,500.00 |
This is your take-home pay after all deductions (including NSSF and NHIF). Note: Housing Levy is not a deduction from your net pay.
|
| NHIF Contribution | 850 |
This is your monthly contribution to the National Hospital Insurance Fund (NHIF). It provides you with access to healthcare services.
|
| Housing Levy | 375 |
This is your monthly contribution towards the Affordable Housing Development Levy. It helps fund government initiatives for affordable housing.
|
- Basic Pay: 25,000 KES – This is your starting salary before deductions.
- NSSF: 1,500 KES – This is your monthly contribution to the National Social Security Fund (NSSF), a pension scheme.
Taxable Pay Calculation:
- Taxable Pay: 23,500 KES (Basic Pay – NSSF) – This is the amount used to calculate your income tax.
Income Tax Calculation (Simplified):
- Income Tax: 2,350 KES – This might seem like a high amount, but we’ll see how tax reliefs come into play.
Tax Reliefs:
There are various tax reliefs that can reduce your taxable income:
- Insurance Relief: -127.50 KES (15% of John’s NHIF contribution)
- AHL Relief: -56.25 KES (15% of John’s Housing Levy contribution)
- Personal Relief: 0.00 KES (This may apply depending on John’s specific circumstances)
PAYE After Reliefs:
- PAYE: 0.00 KES – Due to the tax reliefs, John’s actual PAYE amount payable to KRA is zero in this scenario.
Other Deductions:
- NHIF: 850.00 KES – This is John’s monthly contribution to the National Hospital Insurance Fund (NHIF) for health insurance coverage.
- Housing Levy: 375.00 KES – This is John’s contribution towards affordable housing initiatives.
Net Pay:
- Net Pay: 22,275.00 KES (Taxable Pay + Tax Reliefs – NHIF – Housing Levy) – This is the amount John actually receives after all deductions.
Key Takeaways:
- Your payslip might show a different breakdown depending on your specific circumstances and company benefits.
- Tax reliefs can significantly reduce your taxable income, lowering your PAYE amount.
- Remember, these deductions contribute towards social security, healthcare, and affordable housing initiatives.
Further Resources:
For a more personalized calculation, you can use the PAYE Calculator