Are you on the lookout for the best PAYE calculator in Kenya? Find out why the calculator is important to you, where to find it and the formulas used to determine income tax in Kenya.
Pay As You Earn – Definition
PAYE is a taxing mechanism whereby employers are expected by the government of Kenya to subtract income tax from their employees’ taxable salaries. This form of taxation applies to formal employment. This PAYE amount is deposited with KRA (Kenya Revenue Authority) a few days after collection. In case you don’t understand what deductions have been taken off your wage, you have the right to inquire from your employer or the KRA. If you receive your income on a monthly basis, the tax is taken off every month. In addition to the income tax, your employer takes away other contributions- insurance, NSSF, and NHIF- into which we shall delve.
It is important to note that salary or wage includes adoption pay, sick pay, and maternity pay. In essence, the tax is collected on a monthly basis so you don’t have to pay a lump sum at the end of the year.
Do you really need a PAYE tax calculator?
The KRA has a complex income tax guide containing 57 pages of technical information. It might confuse you instead of helping you. The good news is that there are free income tax calculators available online to make things easier for you. For instance, the KRA PAYE calculator shows you how much is deducted from your gross income depending on the current KRA terms and conditions.
In addition, the calculator helps you to determine the net pay when all the applicable deductions are made. The last but not the least benefit of the PAYE calculator is that it confirms the exemptions and tax incentives which you are eligible for.
The formula for calculating PAYE is bound to change and it is important that you update yourself regularly on the progressive taxation mechanism. You must be wondering how accurate the online PAYE calculators are. Well, they are effectively maintained and updated any time the Kenyan tax laws or change or when the statutory deduction organizations decide to increase or decrease their rates. Sometimes, your tax calculation outcomes may not match your expectations but rest assures that the calculator is very accurate. Feel free to compare the results with other systems such as the pay as you earn calculator app which you can download from Google play store, the Aren calculator, or the official KRA PAYE formula. The PAYE calculator app is a desktop software that may be installed on your PC to calibrate PAYE for different employees in a very simple process. The app comes with the KRA tax brackets.
Who should pay the income tax?
Any Kenyan resident who is on a formal employment payroll and earns KES 11,135 and above, either as a part-time or full-time employee is liable to PAYE. The employer must deduct the due tax from their employee’s remunerations. When we mention the word employee, what comes to your mind? According to the laws of Kenya, it could mean any of the following:
- A manager, agent or any representative of an employer from abroad
- Any organization that controls remunerations and payments
- Any insurance or trust company responsible for paying pensions
- A government body or public authority that deals with payments
An employee is any holder of an official duty for which a wage is payable. The duty could be a private or public calling. This includes a Kenyan worker who is on pensionable retirement program that exceeds 15,000 Kenyan shillings per month.
Generally, there are 5 types of earnings which are taxable: business income, pensions, employment wages including house and transportation allowances, investment incomes, and rental income. Nonetheless, there are other financial aspects that are not taxed including provident funds and housing bonds interests which top up to KES 300,000. The progressive taxation system is what the government of Kenya uses whereby more tax is imposed on higher incomes. In the system are marginal tax rates which determine the amount of income that needs to be taxed. Once again, don’t hesitate to check the best Kenyan PAYE calculator to learn more about the system.
The underlying factors of PAYE
1. Personal tax relief
It refers to the total amount that is deducted from the net PAYE on the monthly income of an employee. In other words, it is a reduction of the tax obligation and an important tool for the progressive tax mechanism that is used in income distribution. The current tax relief is KES 1280 per month, which translates to KES 15,360 per year.
NSSF stands for National Social Security Fund. It is a government body which was formed in 1965 by parliament with the aim of providing fundamental financial security to Kenyans employees upon retirement. It is one of the trusted centers of excellence as far as social security provision goes. After retirement, the members get a third of their money and the two-thirds is disbursed periodically throughout the retirement life.
The National Hospital Insurance Fund is a state corporation that kicked off in 1966 as one of the departments of the Ministry of Health. NHIF offers medical insurance cover to the registered members as well as their legitimate dependants i.e. children and spouses. Any Kenyan citizen who earns more than Ksh.1000 per month is expected to make a monthly contribution to the health insurance cover. This fund covers for doctor consultations, lab exams, maternity, family planning, dialysis, among other outpatient and inpatient costs. The NHIF contribution depends on the employee’s gross salary. If you are enrolled in a life insurance cover, you need to produce the insurance certificate to your employer as a proof.
What is PAYE used for?
If you earn a salary in Kenya, you qualify to be a taxpayer. It is important that you participate in building the nation. Paying your taxes is not a voluntary option; it is a mandatory requirement stipulated by KRA. The government needs the Pay As You Earn contributions to secure the health, residence, education, food production, and other amenities of its citizens. Yes, the tax helps to distribute electricity, pay state workers, expand real estates, develop transportation means, and subsidize food production. So, if you earn more than KES 11,135 per month, you must pay the taxes lest you face penalties.
Hopefully, this guide on PAYE calculation in Kenya has enlightened you on how to determine and submit your PAYE tax in a quick manner.