Pay As You Earn (PAYE) is the method through which the Kenya Revenue Authority (KRA) collects income tax from employees. Every employer in Kenya is legally required to deduct PAYE from employee salaries and remit the funds to KRA by the 9th of the following month. Failure to comply attracts penalties of 25% of the unpaid tax plus interest at the prevailing Central Bank rate.
2024/2025 PAYE Tax Brackets
Kenya uses a graduated tax system where different portions of your monthly taxable income are taxed at increasing rates. The first KES 24,000 of monthly income is taxed at 10%, and the rate increases progressively up to 35% for income exceeding KES 800,000. Understanding these brackets is essential for accurate payroll processing.
| Monthly Taxable Income (KES) | Tax Rate | Cumulative Tax (KES) |
|---|---|---|
| Up to 24,000 | 10% | 2,400 |
| 24,001 - 32,333 | 25% | 4,483 |
| 32,334 - 500,000 | 30% | 144,783 |
| 500,001 - 800,000 | 32.5% | 242,283 |
| Above 800,000 | 35% | - |
Step-by-Step PAYE Calculation
- 1Start with the employee's gross salary including all taxable allowances such as house allowance, commuter allowance, and overtime pay.
- 2Subtract tax-exempt contributions: NSSF Tier I and Tier II contributions (up to KES 2,160 per month), mortgage interest relief (up to KES 25,000 per month), and any approved pension contributions (up to KES 20,000 per month).
- 3The result is the taxable income. Apply the graduated tax rates from the table above to each portion of the taxable income.
- 4Subtract the personal relief of KES 2,400 per month from the total tax calculated.
- 5If the employee has an approved insurance policy, subtract insurance relief at 15% of premiums paid, capped at KES 5,000 per month.
- 6The final figure after all reliefs is the net PAYE to remit to KRA.
Personal Relief and Insurance Relief
Every resident taxpayer in Kenya is entitled to a personal relief of KES 2,400 per month (KES 28,800 annually). This is deducted from the tax payable, not from taxable income. Insurance relief applies where an employee has a life, education, or health insurance policy and is calculated at 15% of the premiums paid, subject to a maximum of KES 5,000 per month.
Remember: Personal relief is a tax credit deducted from the tax payable, not a deduction from taxable income. This distinction matters when doing manual calculations.
Worked Example: Monthly PAYE Calculation
Consider an employee earning a gross salary of KES 80,000 per month with NSSF contributions of KES 2,160. The taxable income is KES 77,840. Applying the tax bands: 10% on the first KES 24,000 gives KES 2,400, then 25% on the next KES 8,333 gives KES 2,083, and 30% on the remaining KES 45,507 gives KES 13,652. Total tax is KES 18,135. After subtracting personal relief of KES 2,400, the net PAYE is KES 15,735.
