Terminal Dues Tax Calculator Kenya 2026

What terminal dues are

When a job ends, the employer owes the employee a final set of payments, called terminal dues. They can include unpaid salary, pay in place of notice, payment for unused leave days, severance or redundancy pay, a service gratuity and sometimes other contractual amounts. Many people are surprised to find that part of the final payment disappears in tax and levies.

How these payments are generally taxed

Most terminal dues are treated as employment income in the month they are paid. They are added to that month's pay, taxed at your PAYE bands and, because they are paid with the salary, also increase NSSF, SHIF and the Housing Levy where those apply to gross pay. Because a large lump sum lands on top of a normal month, a good part of it is taxed in the higher bands. This is the same mechanism that makes a bonus look heavily taxed.

Some payments have special treatment under the Income Tax Act, for example certain retirement benefits from approved schemes, or compensation for loss of office in particular cases. The calculator does not decide that for you: it assumes the amounts you enter are all taxable and warns you that exceptions exist. The pension and NSSF lump-sum calculator handles benefits from a pension scheme.

What the calculator does

You enter your usual monthly pay and each type of terminal due. The calculator runs your payroll for a normal month, then again with the dues added, and reports:

• the extra PAYE the dues cause;
• the extra NSSF, health and Housing Levy deductions;
• the amount you keep;
• the share lost to tax and deductions.

A worked example

With monthly pay of KES 100,000 and a severance payment of KES 100,000, the extra PAYE is KES 28,581.00, and you keep KES 66,689.00 of the payment.

Ways people legitimately reduce the tax

• Ask about instalments. Some employers agree to pay terminal dues over several months, which can keep each month in lower bands. This only works if the employer agrees and the contract allows it.
• Check the reliefs. If you pay insurance premiums or mortgage interest, make sure payroll applied them in the last month. Missing reliefs can be claimed on your annual return.
• Pension. If you are a member of a pension scheme, ask whether part of the payment may go into it as a contribution, and what the limits are.
• Reconcile at year end. Your annual return recalculates tax over the whole year. If you worked only part of the year, the return can produce a refund of tax overpaid on terminal dues.

What to confirm before you leave

Ask for a written breakdown of every item, the method used to calculate severance and leave pay, and the tax treatment of each. Use the severance, notice and leave calculator to check the gross amounts before tax. Keep your final payslip and P9 for your return.

This tool gives estimates for information only. Employment contracts, collective agreements and special rules can change the answer, so confirm with your employer, KRA or a tax adviser.

Timing the exit

If you have some control over your leaving date, think about the tax year. Dues that fall in a month in which you also earn a full salary are stacked on top of it, whereas dues paid after you have left, in a month with no salary, are partly taxed in lower bands. This does not change the annual outcome by itself, but it affects what is deducted at the time. Ask a tax adviser before you rearrange dates, and never agree to anything that misdescribes a payment.

Guides, tools and templates for this topic

Read next: How PAYE is calculated in Kenya, step by step, NSSF contributions explained: tiers, limits and what you pay, Gross pay versus net pay: how to negotiate a salary in Kenya

Related calculators: Severance, Notice and Leave Pay Calculator, Bonus, Overtime and Commission Tax Calculator, Pension and NSSF Lump Sum Tax Calculator

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