Pay As You Earn (PAYE) is one of the self-taxes you may have encountered while on the iTax portal. Normally, you will file for PAYE if your salary is Kshs 24,000 and above.
These deductions should be made and sent to the authorities before date 9 of the following month. Any day later than that will attract penalty charges.
We go into details in this article, introducing you to everything you need to know about PAYE as follows;
- How to file for employee’s PAYE returns on iTax
- PAYE calculator
- Formula for calculating PAYE
- Penalties charges if you don't file for PAYE
- Frequently asked questions on PAYE(FAQs)
How to file for employee's PAYE returns on iTax
Here's a step by step guide on how you can file for PAYE as follows;
- Log in to your iTax portal by inputting your KRA PIN and password.
- Click on the "return menu" and select “file return” on the return drop below.
- In the next step, you will be required to fill in your tax obligation, and you'll select "income PAYE."
- Click to download the excel PAYE return form to fill in the information needed.
- Under basic information, you will:
- Fill in the employer's PIN.
- The type of return you are filling for.
- Entity type, which is "original," and the return periods, click "next."
- Input the employee's details, including their allowances, benefits, and basic salaries.
- Fill in the computation of car benefits if the company gives them one.
- Fill in the computation of insurance relief.
- Calculate the tax due, input the amount, and click "validate."
- After validating, you will be required to generate and upload the zipped file
- Go back to the PAYE return menu and choose the zipped file to upload.
- Tick on the terms and conditions, then click" submit."
- You will be notified that the return has been completed successfully with a receipt to download if you wish to.
- On the receipt, you will click on "payment," whereby the payment information will pop up to confirm the details and choose the mode of payment you want to pay with, then click "submit."
Here's a simple video tutorial you can use for filing your PAYE.
PAYE is calculated using the PAYE calculator provided on the KRA portal for tax calculations. You will fill in the questions concerning the type of PAYE deductions you want to make, then click calculate. You can also download the KRA PAYE calculator from the apple and google stores, respectively.
Formula for calculating PAYE
- Calculate all the income salaries of the employees you have. This will include allowances and benefits received as well.
- Calculate the gross income which will be achieved by calculating the following;
The employee's basic salary + allowances they get + commissions.
- Calculate taxable net PAYE, which will be;
Gross income - all deductions that are to be made.
- Calculate gross PAYE with the following formula;
PAYE multiplied by the net taxable income
Penalties charges if you don't file for PAYE
Filing returns is a must do obligation for every individual, and failure to do that will have you facing inevitable consequences for your actions. As an employer, you must submit and file your employee's PAYE returns to the Kenya Revenue Authorities on or before the 9th of the following month.
Failure to do that will result in you paying an amount of Kshs 10,000 or 25% amount of the tax due. If you pay late, you will also be charged 5% of the tax due and 1% for each month your late payment is only paid for once you complete the payments.
Frequently asked questions on PAYE(FAQs)
What are the non-cash benefits chargeable to PAYE?
There are so many benefits an employee can get from a given company. Some may be chargeable, and some not. Let's look at some that are chargeable benefits;
- Housing allowances could be in cases whereby the company provides houses for their employees.
- Car benefits that might be given to employees by the company.
- Loans with interests that are lower than the current market rate.
- Pension contributions paid by the employer to a registered or unregistered pension fund at Kshs 20,000 per month or Kshs 240,000 per year.
- Household basics such as telephones, internet, water, and security offered to employees at Kshs 3000 per month.
What are the incomes not chargeable to PAYE?
- Employees medical covers
- Meals provided at work by the employer
- Education fees that benefit the employee's family, which the employer has to tax already.
What are the KRA allowable deductions?
We have certain deductions subjected to employees from their salaries that will be added to their PAYE mortgage interest deductions.
- Pension contributions made by an employee to a registered pension fund which is limited to Kshs 20,000 per month.
- Interests paid on loans given which should not succeed a maximum amount of Kshs 300,000 per year as required of them by the income tax act.
What are tax reliefs to be deducted?
We have two types of tax reliefs under PAYE;
- Personal relief is given to residential individuals at Kshs 2,400 per month or Kshs 28,800 per year.
- The insurance relief granted to employees paying for relief services such as NHIF and education policies paid for their own benefits.
Who should pay for PAYE?
Any person working in a stable employment sector should be able to participate in PAYE filings and have them submit to the KRA.
How can I file and pay for PAYE?
PAYE filing should be done online on the iTax portal and submitted as required. You can either pay via banks that KRA is approved or via Lipa Na M-PESA under KRA pay bill number 572572.
Paying for PAYE is important to employees who are working in profitable companies. By doing that, the KRA portal eases your work and saves you lots of time taken for calculations since KRA has an online calculator for easy work done.
NOTE: You can also check out our short YouTube video made on the PAYE tax filing.