Are you a salaried employee in Kenya wondering where a portion of your paycheck goes and how much is PAYE on Ksh400,000? PAYE, is a system that collects income tax throughout the year. This article will guide you through PAYE deductions, using a clear example to illustrate the process.
Table breakdown for PAYE deductions on Ksh400,000
| Item | Amount |
|---|---|
| BASIC PAY | 400,000.00 |
| NSSF | 2,160.00 |
| TAXABLE PAY | 397,840.00 |
| INCOME TAX | 114,135.36 |
| Insurance Relief | -255.00 |
| AHL Relief | -900.00 |
| Personal Relief | -2,400.00 |
| P.A.Y.E | 110,580.36 |
| PAY AFTER TAX | 287,259.64 |
| NHIF | 1,700.00 |
| Housing Levy | 6,000.00 |
| NET PAY | 279,559.64 |
What is PAYE?
The KRA utilizes PAYE to collect income tax from your salary before you receive it. Your employer acts as a collection agent, withholding the tax and remitting it to the KRA on your behalf.
Who Pays PAYE?
PAYE applies to anyone earning income from formal employment in Kenya. This includes your wages, salary, bonuses, commissions, and allowances.
Calculating Your PAYE
The amount deducted for PAYE depends on your monthly gross salary and the current individual income tax rates set by the Kenyan government. These rates are tiered, meaning the higher your income, the higher the tax percentage you pay on that portion.
Understanding Your PAYE Breakdown: Angela’s Example
Let’s use the example of Angela Kerubo, who earns a basic salary of Ksh 450,000, to illustrate a PAYE breakdown.
Step 1: Taxable Pay
First, we need to consider deductions like contributions to the NSSF. Let’s assume Angela contributes Ksh 2,160 to NSSF, resulting in her taxable income being:
- Taxable Pay = Ksh 450,000 (Basic Pay) – Ksh 2,160 (NSSF) = Ksh 397,840
Step 2: Applying Income Tax Rates
Kenya uses a tiered income tax system. As of July 2023, the rates are:
- 10% for the first Ksh 24,000 of monthly income
- 25% for the next Ksh 8,333
- 30% for income exceeding Ksh 32,333
To determine the exact tax deducted, you can use a PAYE calculator or consult a tax professional. Here, for simplicity, let’s assume Angela falls entirely under the 30% tax bracket:
- Income Tax = Ksh 397,840 x 30% = Ksh 119,352
Step 3: Tax Reliefs and Deductions
Fortunately, tax reliefs and deductions can reduce your overall tax liability. These include:
- Monthly Personal Relief: Ksh 2,400
- Insurance Relief: 15% of your NHIF contributions (up to a maximum)
- Affordable Housing Relief: 15% of your Housing Levy contribution (up to a maximum)
Let’s say Angela contributes Ksh 1,700 to NHIF and Ksh 6,000 to Housing Levy. Applying the reliefs:
- Insurance Relief = Ksh 1,700 x 15% = Ksh 255
- AHL Relief = Ksh 6,000 x 15% = Ksh 900
Step 4: Calculating Final PAYE
We can now calculate Angela’s final PAYE by subtracting the reliefs from her income tax:
- PAYE = Ksh 119,352 (Income Tax) – Ksh 255 (Insurance Relief) – Ksh 900 (AHL Relief) – Ksh 2,400 (Personal Relief) = Ksh 110,580.36
Step 5: Net Pay
After subtracting PAYE and other mandatory deductions like NHIF and Housing Levy, Angela’s net salary would be:
- Net Pay = Ksh 450,000 (Basic Pay) – Ksh 2,160 (NSSF) – Ksh 110,580.36 (PAYE) – Ksh 1,700 (NHIF) – Ksh 6,000 (Housing Levy) = Ksh 279,559.64
Important Notes
- This is a simplified example. Your actual tax calculations may vary based on your specific circumstances.
- For a more precise calculation, consult a tax professional or use the KRA’s PAYE calculator.
By understanding PAYE and its components, you can manage your finances better and ensure you are compliant with Kenyan tax regulations.