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Whats a PAYE Calculator

The PAYE calculator is a crucial tool for both employees and employers in understanding and managing income tax obligations. This article will provide an in-depth exploration of what a PAYE calculator does, how it works, and will include detailed examples to illustrate its function. We will cover every component involved in the PAYE calculation, from basic pay to net pay after all deductions.

A PAYE calculator is a tool used to compute the amount of income tax that an employee needs to pay on their earnings. It considers various factors including basic pay, statutory deductions such as NSSF and NHIF, tax reliefs, and other levies to determine the net pay. The PAYE system ensures that income tax is deducted from an employee’s salary before they receive it, making it easier for employees to manage their tax liabilities and for the government to collect income tax.

Components of the PAYE Calculator

  1. Basic Pay: The gross salary before any deductions.
  2. NSSF: A statutory deduction towards the employee’s retirement savings.
  3. Taxable Pay: The salary amount after subtracting NSSF contributions, which is subject to income tax.
  4. Income Tax: The tax calculated on the taxable pay based on progressive tax rates.
  5. Reliefs:
    • Insurance Relief: A tax relief on life insurance premiums.
    • AHL Relief: A tax relief for contributions towards affordable housing.
    • Personal Relief: A standard relief available to all taxpayers to reduce their tax burden.
  6. PAYE: The net income tax payable after deducting all applicable reliefs from the income tax.
  7. Pay After Tax: The salary after subtracting PAYE.
  8. NHIF: A statutory deduction for health insurance.
  9. Housing Levy: A statutory deduction towards affordable housing.
  10. Net Pay: The final amount an employee receives after all deductions.

Example Calculations

To understand the PAYE calculations better, let’s go through detailed examples with different salary levels.

Example 1: PAYE on Ksh 30,000

BASIC PAY: 30,000.00

  • NSSF: 1,800.00
    NSSF contributions are typically a percentage of the basic pay, with a maximum cap.
  • TAXABLE PAY: 28,200.00
    This is calculated as:
    Basic Pay – NSSF
    = 30,000.00 – 1,800.00
    = 28,200.00
  • INCOME TAX: 3,450.00
    Income tax is computed on the taxable pay using the applicable tax brackets and rates.
  • Reliefs:
    • Insurance Relief: -135.00
    • AHL Relief: -67.50
    • Personal Relief: -2,400.00
  • P.A.Y.E: 847.50
    This is calculated as:
    Income Tax – (Insurance Relief + AHL Relief + Personal Relief)
    = 3,450.00 – (135.00 + 67.50 + 2,400.00)
    = 847.50
  • PAY AFTER TAX: 27,352.50
    This is calculated as:
    Taxable Pay – P.A.Y.E
    = 28,200.00 – 847.50
    = 27,352.50
  • NHIF: 900.00
    NHIF contributions are based on the gross salary and follow a defined rate table.
  • Housing Levy: 450.00
    The Housing Levy is a percentage of the basic pay.
  • NET PAY: 26,002.50
    This is calculated as:
    Pay After Tax – (NHIF + Housing Levy)
    = 27,352.50 – (900.00 + 450.00)
    = 26,002.50

Example 2: PAYE on Ksh 100,000

BASIC PAY: 100,000.00

  • NSSF: 2,160.00
    The maximum NSSF contribution is considered here.
  • TAXABLE PAY: 97,840.00
    Basic Pay – NSSF
    = 100,000.00 – 2,160.00
    = 97,840.00
  • INCOME TAX: 24,135.36
    Computed based on the progressive tax rates on the taxable pay.
  • Reliefs:
    • Insurance Relief: -255.00
    • AHL Relief: -225.00
    • Personal Relief: -2,400.00
  • P.A.Y.E: 21,255.36
    Income Tax – (Insurance Relief + AHL Relief + Personal Relief)
    = 24,135.36 – (255.00 + 225.00 + 2,400.00)
    = 21,255.36
  • PAY AFTER TAX: 76,584.64
    Taxable Pay – P.A.Y.E
    = 97,840.00 – 21,255.36
    = 76,584.64
  • NHIF: 1,700.00
    Based on the NHIF rate table for the given gross salary.
  • Housing Levy: 1,500.00
    A percentage of the basic pay.
  • NET PAY: 73,384.64
    Pay After Tax – (NHIF + Housing Levy)
    = 76,584.64 – (1,700.00 + 1,500.00)
    = 73,384.64

Example 3: PAYE on Ksh 500,000

BASIC PAY: 500,000.00

  • NSSF: 2,160.00
    Maximum NSSF contribution.
  • TAXABLE PAY: 497,840.00
    Basic Pay – NSSF
    = 500,000.00 – 2,160.00
    = 497,840.00
  • INCOME TAX: 144,135.36
    Computed using the progressive tax rates on the taxable pay.
  • Reliefs:
    • Insurance Relief: -255.00
    • AHL Relief: -1,125.00
    • Personal Relief: -2,400.00
  • P.A.Y.E: 140,355.36
    Income Tax – (Insurance Relief + AHL Relief + Personal Relief)
    = 144,135.36 – (255.00 + 1,125.00 + 2,400.00)
    = 140,355.36
  • PAY AFTER TAX: 357,484.64
    Taxable Pay – P.A.Y.E
    = 497,840.00 – 140,355.36
    = 357,484.64
  • NHIF: 1,700.00
    Based on the NHIF rate table for the given gross salary.
  • Housing Levy: 7,500.00
    A percentage of the basic pay.
  • NET PAY: 348,284.64
    Pay After Tax – (NHIF + Housing Levy)
    = 357,484.64 – (1,700.00 + 7,500.00)
    = 348,284.64

Conclusion

The PAYE calculator is an essential tool for ensuring accurate and compliant payroll processing. By understanding each component of the PAYE calculation, both employers and employees can better manage their finances and tax obligations. The examples provided illustrate the step-by-step process of how basic pay is transformed into net pay after all statutory deductions and reliefs are applied. Whether you are earning Ksh 30,000, Ksh 100,000, or Ksh 500,000, the PAYE calculator ensures that your income tax is correctly calculated and deducted, thereby helping maintain compliance with tax laws and regulations.

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