How a bonus is taxed
KRA lists bonuses as part of taxable cash pay. Your employer adds the bonus to that month's salary and works out PAYE on the total, so the bonus sits in your highest band. The calculator does the same: it runs PAYE on your normal pay, runs it again with the bonus added, and the difference is the tax on the bonus.
Worked example: KES 50,000 bonus on a KES 100,000 salary
- Normal month: PAYE is KES 19,308.
- With the bonus, gross for the month is KES 150,000. PAYE rises to KES 33,527, so the bonus carries KES 14,219 of PAYE.
- NSSF, SHIF and the Housing Levy also rise with the higher gross, by KES 2,605 between them.
- You keep KES 33,176 of the KES 50,000 bonus.
These figures use the rates in our PAYE engine on 25 October 2026.
When gratuity is tax-free
The Finance Act 2026 added a gratuity exemption from 1 July 2026. In KRA's words, gratuity qualifies "if the contract of service is for a period of at least three continuous years (or an extension of a three year contract) and the gratuity does not exceed 31% of emoluments earned during that period." KRA was later quoted as saying "Both conditions must be satisfied for the gratuity to qualify for the exemption" (reported by Kenyans.co.ke, 31 August 2026).
Worked example: three-year contract at KES 100,000 a month
- Emoluments over the contract: 36 months at KES 100,000 is KES 3,600,000.
- 31% of that is KES 1,116,000. This is the most the gratuity can be and still qualify.
- A gratuity of KES 900,000 is within the limit, so all of it is tax-free.
- A gratuity of KES 1,200,000 is over the limit. On our reading (see below) the whole amount is taxed with that month's pay: about KES 373,970 of PAYE.
Assumptions we had to make
We read KRA's summary, not the gazetted text of the Act, which we could not reach. Where the summary leaves a point open, the calculator takes the cautious reading and says so:
- Over the 31% limit: KRA says the gratuity must "not exceed" 31%, and was quoted as saying both conditions must be satisfied. We therefore treat a gratuity above the limit as fully taxable, not as tax-free up to 31% with only the excess taxed. If the Act turns out to exempt the first 31%, your tax will be lower than shown.
- Emoluments: KRA uses "emoluments earned during that period", not basic salary. We take that as all pay earned over the contract. Ask HR for the figure your payroll will use.
- Contract length: enter the length of the continuous contract, or of the three-year contract you are on an extension of. Any figure of 3 or more meets the length test in the calculator.
- NSSF, SHIF and Housing Levy: we apply them to the bonus and to any taxable gratuity, because both are charged on gross pay. If your employer does not deduct them from gratuity, you keep a little more than shown.
Sources
- KRA, Finance Act 2026: what it means for you (gratuity conditions; most changes effective 1 July 2026). Read 25 Oct 2026.
- KRA, PAYE (bonuses and service gratuity are taxable cash pay; PAYE bands). Read 25 Oct 2026.
- Vialto Partners, Kenya: Finance Act 2026, employment tax (the exemption is a new paragraph (ga) in section 5(4) of the Income Tax Act). Dated 15 Jul 2026.
- Kenyans.co.ke, KRA Explains Who Qualifies for Tax-Free Gratuity Under New Rules (news report quoting KRA: "Both conditions must be satisfied"). 31 Aug 2026. Used only for that quote.