Posted On: 24-03-2025
How NSSF Contributions Affect Your Taxes and Net Salary in Kenya
Understanding the Role of NSSF in Taxation
The National Social Security Fund (NSSF) plays a crucial role in Kenya’s taxation system, primarily by providing tax benefits on contributions and affecting payroll deductions. Many employees and employers often wonder how NSSF impacts their overall tax obligations and net salary. This article explores how NSSF contributions can help reduce tax liability and outlines how they affect take-home pay.
Taxation on NSSF Withdrawals
The taxation of NSSF benefits depends on the reason for withdrawal and whether the funds have met retirement conditions.
1. Tax-Free NSSF Withdrawals
You can withdraw your NSSF savings without paying tax under the following conditions:
- Retirement at 60 years or early retirement at 50 years
- Permanent disability
- Permanent emigration from Kenya
- Death benefits paid to beneficiaries
2. Taxable NSSF Withdrawals
If you withdraw your contributions before retirement without meeting the approved conditions, the lump sum may be subject to taxation. The tax rate depends on:
- The period the funds have been held
- Whether the contributions were voluntary or mandatory
- Current tax laws as set by the Kenya Revenue Authority (KRA)
How NSSF Contributions Affect Your Net Salary
Under the new NSSF Act, contributions are categorized into Tier I and Tier II, depending on an employee’s gross salary.
NSSF Contribution Rates (2024)
| Tier | Employee contribution | Employer contribution | Total Contribution |
| Tier I (up to KSh 6,000) | 6% of KSh 6,000 = KSh 360 | 6% of KSh 6,000 = KSh 360 | KSh 720 |
| Tier II (above KSh 6,000, up to KSh 18,000) | 6% of (KSh 18,000 - KSh 6,000) = KSh 720 | 6% of (KSh 18,000 - KSh 6,000) = KSh 720 | KSh 1,440 |
| Total (for salary KSh 18,000 and above) | KSh 1,080 | KSh 1,080 | KSh 2,160 |
Payroll Deductions Example (Salary: KSh 50,000)
To better understand how NSSF affects net salary, let’s break down payroll deductions for an employee earning KSh 50,000 per month.
Step 1: Deduct NSSF
- NSSF (Tier I + Tier II) = KSh 1,080
- Taxable Salary = KSh 50,000 - KSh 1,080 = KSh 48,920
Step 2: Compute PAYE (Income Tax)
Kenya’s Pay As You Earn (PAYE)tax bands apply as follows:
| Monthly Income (KSh) | Tax Rate (%) | Tax Amount (KSh) |
| 0 – 24,000 | 10% | KSh 2,400 |
| 24,001 – 32,333 | 25% | KSh 2,083 |
| 32,334 – 48,920 | 30% | KSh 4,976 |
| Total PAYE Before Relief | | KSh 9,459 |
| Less Personal Relief | | KSh 2,400 |
| Final PAYE | | KSh 7,059 |
Step 3: Deduct NHIF Contributions
- For a gross salary of KSh 50,000, NHIF = KSh 1,700
Step 4: Calculate Net Salary
| Item | Amount (KSh) |
| Gross Salary | 50,000 |
| Less NSSF | 1,080 |
| Taxable Salary | 48,920 |
| Less PAYE | 7,059 |
| Less NHIF | 1,700 |
| Net Salary | KSh 41,241 |
Conclusion
NSSF contributions in Kenya serve a dual purpose: they provide retirement security while also offering tax relief. By deducting NSSF from taxable income, employees reduce their PAYE liability, ultimately affecting their net salary. Understanding these deductions can help both employees and employers plan their finances more effectively.
Would you like assistance in calculating your net salary with additional deductions? Let us know at Zurit consulting!