Have you ever stared at your payslip, bewildered by the deductions that seem to shrink your paycheck each month? You’re not alone! In Kenya, the system responsible for collecting income tax throughout the year is called PAYE. This guide aims to demystify PAYE deductions by taking a deep dive into a sample payslip, using Abigail Chebet’s breakdown as our compass. Through Abigail’s example, we’ll navigate the different deductions and explain where a portion of your hard-earned income goes. Below is a table breakdown of Abigail’s payslip.

Abigail Chebet’s Payslip Breakdown:

DescriptionAmount (Ksh)
Basic Pay140,000.00
NSSF Contribution-2,160.00
Taxable Pay137,840.00
Income Tax-36,135.36
– Insurance Relief255.00
– AHL Relief315.00
– Personal Relief-2,400.00
Net Pay Before NHIF & Housing Levy104,674.64
NHIF Contribution-1,700.00
Housing Levy-2,100.00
Net Pay100,874.64

Step 1: NSSF Contribution – Saving for the Future

First, Abigail’s employer deducts her monthly contribution (Ksh 2,160) to the NSSF Think of NSSF as a piggy bank for your retirement – it helps you save for the future! This deduction leaves her with a taxable income of Ksh 137,840 (Ksh 140,000 basic salary minus Ksh 2,160 NSSF contribution).

Step 2: Calculating Income Tax – Reducing the Bite

Now, KRA takes a portion of Abigail’s taxable income as income tax. But before they do, they consider some reliefs to lower her tax burden. These are like helpful discounts:

  • Insurance Relief: This allows Abigail to deduct a part of her monthly NHIF contributions, recognizing the importance of health insurance.
  • AHL Relief: If Abigail contributes to an approved housing scheme , she can deduct some of those contributions as well.
  • Personal Relief: Everyone who gets a salary in Kenya gets a fixed amount deducted from their taxable income, regardless of their situation.

After applying these reliefs, KRA calculates Abigail’s final income tax liability, also known as PAYE, which comes to Ksh 33,165.36.

Step 3: Arriving at Net Pay – Your Take-Home Money

Subtracting the PAYE amount from her initial taxable income gives us her net pay before NHIF and Housing Levy (Ksh 104,674.64). This is the amount left after income tax is deducted. Here, there are two more deductions:

  • NHIF Contribution: Abigail contributes Ksh 1,700 to the National Hospital Insurance Fund (NHIF), a health insurance scheme that provides medical cover.
  • Housing Levy: She also contributes 1.5% of her basic salary (Ksh 2,100) to the Housing Fund Levy.

Finally, after subtracting these contributions from her net pay before NHIF and Housing Levy, we arrive at Abigail’s take-home pay: Ksh 100,874.64.

Understanding Your Payslip – Taking Control of Your Finances

By understanding PAYE deductions, you can see how much of your salary goes towards taxes and social security contributions. This knowledge empowers you to create a better budget and plan your finances more effectively. Remember, the tax rates and reliefs mentioned here are for illustrative purposes only. It’s always best to consult with KRA for the most up-to-date information on tax rates and reliefs applicable to you

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