Understanding how Paye works in Kenya is essential for both employers and employees. This article explains how to calculate Paye on Ksh 950,000 using the example of Mary Ken, who earns a basic salary of Ksh 950,000 annually.
Salary Breakdown for Mary Ken
Let’s break down Mary’s salary and the associated deductions to understand how her PAYE is calculated.
| Description | Amount (Ksh) |
|---|---|
| Basic Pay | 950,000.00 |
| NSSF Deduction | 2,160.00 |
| Taxable Pay | 947,840.00 |
| Income Tax | 294,027.36 |
| Insurance Relief | -255.00 |
| AHL Relief | -2,137.50 |
| Personal Relief | -2,400.00 |
| Gross PAYE | 294,027.36 |
| Total Relief | -4,792.50 |
| PAYE | 289,234.86 |
| Pay After Tax | 660,765.14 |
| NHIF Deduction | 1,700.00 |
| Housing Levy | 14,250.00 |
| Net Pay | 644,815.14 |
Understanding the Calculations
Taxable Pay
To begin with, we need to determine Mary’s taxable income. This is achieved by subtracting her mandatory NSSF contribution of Ksh 2,160.00 from her gross salary of Ksh 950,000.00. Consequently, her taxable pay amounts to Ksh 947,840.00.
Income Tax
Next, we calculate Mary’s income tax based on Kenya’s tax brackets. Her income tax is computed on her taxable pay of Ksh 947,840.00.
Tax Reliefs
Furthermore, Kenya offers various tax reliefs that help reduce the amount of income tax payable. For Mary, these reliefs include:
- Insurance Relief: Ksh 255.00
- AHL Relief: Ksh 2,137.50
- Personal Relief: Ksh 2,400.00
These reliefs are subtracted from the gross income tax to arrive at the final Paye amount.
PAYE Calculation
After applying the tax reliefs, Mary’s Paye amount is Ksh 289,234.86. Therefore, this is calculated as follows:
- Gross PAYE: 294,027.36
- Total Relief: 4,792.50
- Final PAYE: 294,027.36 – 4,792.50 = 289,234.86
Net Pay Calculation
To determine Mary’s net pay, further deductions are made from her pay after tax. These deductions include:
- NHIF Deduction: Ksh 1,700.00
- Housing Levy: Ksh 14,250.00
By subtracting these amounts from her pay after tax, we get her final net pay:
- Pay After Tax: 660,765.14
- NHIF Deduction: 1,700.00
- Housing Levy: 14,250.00
- Net Pay: 660,765.14 – 1,700.00 – 14,250.00 = 644,815.14
Important Note
It is important to remember that tax rates and reliefs are subject to change. Therefore, for the most up-to-date information, it is advisable to consult with the KRA or a qualified tax professional. Additionally, staying informed about current tax regulations ensures accurate and compliant financial planning.
By understanding these steps, both employers and employees can effectively manage Paye deductions and ensure accurate salary calculations.