Understanding PAYE Deductions in Kenya
Published: June 15, 2026 • Kenya Tax Guides • 4 min read
Pay As You Earn (PAYE) is Kenya's primary method for collecting individual income tax from formal employment earnings. Under the Income Tax Act (Cap 470) and subsequent amendments under the Finance Act 2023, employers are legally obligated to deduct income tax at source from their employees' monthly emoluments and remit it to the Kenya Revenue Authority (KRA). Navigating the progressive tax brackets, allowable deductions, and statutory reliefs is critical for calculating net take-home pay accurately.
Individual Income Tax Bands (Monthly & Annual)
Kenya operates a progressive tax rate system where higher portions of income are taxed at progressively higher marginal rates. The statutory monthly tax brackets are:
| Monthly Taxable Income Band | Marginal Tax Rate | Maximum Tax in Band |
|---|---|---|
| First KES 24,000 (KES 0 – 24,000) | 10.0% | KES 2,400.00 |
| Next KES 8,333 (KES 24,001 – 32,333) | 25.0% | KES 2,083.25 |
| Next KES 467,667 (KES 32,334 – 500,000) | 30.0% | KES 140,300.10 |
| Next KES 300,000 (KES 500,001 – 800,000) | 32.5% | KES 97,500.00 |
| Above KES 800,000 | 35.0% | Variable (35% of excess) |
The Complete 4-Step PAYE Calculation Formula
Calculating PAYE accurately requires following the strict legal sequence established by KRA:
Step 1: Determine Gross Taxable Remuneration
Sum all earnings received by the employee, including basic salary, house allowances, transport allowances, cash bonuses, and director fees.
Step 2: Subtract Allowable Statutory Deductions
Deduct permissible statutory items from gross pay to arrive at Taxable Pay:
- NSSF Contributions: Up to a maximum of KES 2,160 per month.
- Registered Pension Scheme Contributions: Total employee pension deductions (including NSSF) up to KES 20,000/month.
- Mortgage Interest Relief: Interest paid on loans borrowed from financial institutions to acquire or improve owner-occupied residential property, up to KES 25,000/month (KES 300,000/year).
Step 3: Apply the Progressive Tax Brackets
Apply the graduated tax brackets (10%, 25%, 30%, 32.5%, 35%) to your net Taxable Pay to compute the Gross Tax Liability.
Step 4: Deduct Statutory Tax Reliefs
Subtract all eligible statutory reliefs from Gross Tax to determine the final Net PAYE Payable:
- Personal Relief: A universal statutory relief of KES 2,400 per month (KES 28,800 annually) granted to every Kenyan tax-resident individual.
- Insurance Relief: 15% of qualifying premiums paid towards life insurance, education policies (minimum 10-year term), and SHIF healthcare contributions, capped at KES 5,000 per month.
- Affordable Housing Relief: 15% of employee Housing Levy contribution, capped at KES 9,000 per month.
Complete Worked Example: KES 80,000 Monthly Salary
Let us calculate the net PAYE tax for an employee earning a gross monthly salary of KES 80,000:
- Gross Salary: KES 80,000.00
- NSSF Deduction: KES 2,160.00 (KES 420 Tier I + KES 1,740 Tier II)
- Taxable Pay: KES 80,000 - KES 2,160 = KES 77,840.00
- Gross Tax Calculation:
- First KES 24,000 @ 10% = KES 2,400.00
- Next KES 8,333 @ 25% = KES 2,083.25
- Remaining KES 45,507 (77,840 - 32,333) @ 30% = KES 13,652.10
- Total Gross Tax: KES 2,400 + 2,083.25 + 13,652.10 = KES 18,135.35
- Statutory Relief Deductions:
- Personal Relief: -KES 2,400.00
- Insurance Relief (15% of SHIF KES 2,200): -KES 330.00
- Housing Relief (15% of AHL KES 1,200): -KES 180.00
- Total Reliefs: -KES 2,910.00
- Final Net PAYE Remittance: KES 18,135.35 - KES 2,910.00 = KES 15,225.35
Filing Deadlines and KRA Compliance
Employers must file and remit PAYE deductions on or before the 9th day of every calendar month via the KRA iTax system. Late filing triggers a statutory penalty of 25% of the tax due or KES 10,000 (whichever is higher), alongside late payment interest of 1% per month. Employees must ensure their employers provide an annual P9 form by March of the following year to support their annual individual tax return filing before the June 30th deadline.
