Linet Moraa, a Marketing Manager at a leading Freight Forwarding Company in Mombasa, is expecting a well-deserved raise! But before celebrating the extra digits on her paycheck, understanding her net pay, the amount she receives after taxes and deductions, is crucial. This is where PAYE comes in.
PAYE Explained:
PAYE simplifies the tax filing process by deducting income tax and NSSF contributions directly from your salary at the source. Here’s a breakdown of how Linet can calculate her take-home pay for her potential 350,000 KSH annual salary, incorporating a helpful table for clarity:
Step-by-Step Breakdown with Table:
| Description | Amount (KSH) |
|---|---|
| Basic Pay | 350,000 |
| Less: NSSF Contribution | – 2,160 |
| Taxable Pay | 347,840 |
| Less: Income Tax (Assumed amount) | – 99,135.36 |
| Add: Insurance Relief | + 255 |
| Add: Affordable Housing Relief (AHL) | + 787.50 |
| Add: Personal Relief | + 2,400 |
| PAYE | 95,692.86 |
| Less: PAYE | – 95,692.86 |
| Gross Pay | 252,147.14 |
| Less: NHIF Contribution | – 1,700 |
| Less: Housing Levy | – 5,250 |
| Net Pay | 245,197.14 |
Explanation:
- Basic Pay: This is the starting point – in Linet’s case, her potential increased salary of 350,000 KSH.
- NSSF Contribution: Linet contributes 2,160 KSH towards her social security.
- Taxable Pay: We subtract the NSSF contribution: 350,000 KSH (Basic Pay) – 2,160 KSH (NSSF) = 347,840 KSH.
- Income Tax: This is where things get interesting. Kenya uses a tiered tax system. Without access to Linet’s specific tax bracket, we can’t pinpoint the exact amount. However, for illustrative purposes, let’s assume her income tax comes to 99,135.36 KSH.
- Reliefs and Exemptions: Thankfully, the Kenyan tax system offers reliefs to reduce the taxable income:
- Insurance Relief: This lowers Linet’s tax burden by 255 KSH.
- Affordable Housing Relief (AHL): This relief provides a deduction of 787.50 KSH.
- Personal Relief: A standard deduction of 2,400 KSH is applied.
Calculating PAYE:
We now subtract the reliefs from the income tax: 99,135.36 KSH (Income Tax) – 255 KSH (Insurance Relief) + 787.50 KSH (AHL Relief) + 2,400 KSH (Personal Relief) = 95,692.86 KSH (PAYE).
Take-Home Pay:
Now it’s time to find Linet’s net pay: 347,840 KSH (Taxable Pay) – 95,692.86 KSH (PAYE) = 252,147.14 KSH. But wait, there’s more!
Additional Deductions:
There are two final deductions to consider:
- NHIF (National Hospital Insurance Fund): This mandatory contribution amounts to 1,700 KSH.
- Housing Levy: A levy of 5,250 KSH is deducted for affordable housing initiatives.
The Final Net Pay:
Finally, we subtract these deductions from Linet’s post-PAYE amount: 252,147.14 KSH – 1,700 KSH (NHIF) – 5,250 KSH (Housing Levy) = 245,197