Chapter 6
PAYE (Pay As You Earn) – Income Tax
Last reviewed 1 January 2026
Income Tax Act, Chap. 75:01
Administered by: Inland Revenue Division (IRD), www.ird.gov.tt
Why This Matters
PAYE is the mechanism by which income tax on employment earnings is collected at source. The employer acts as the collection agent on behalf of the State, deducting tax from each employee’s salary before it is paid and remitting that tax to the IRD on a monthly basis. This is not a discretionary arrangement. Under the Income Tax Act (Chap. 75:01), the employer is legally responsible for correct deduction and timely remittance, regardless of whether the employee requests it or disputes the calculation. An employer who fails to deduct and remit PAYE correctly is liable for the tax owed, plus penalties and interest. The obligation does not transfer to the employee simply because the employer omitted the deduction.
How PAYE Works
PAYE is calculated on an employee’s chargeable income, that is, gross employment income reduced by the personal allowance and any other approved deductions. The personal allowance for resident individuals is TT$90,000 per year, meaning that the first TT$90,000 of an employee’s annual income is not subject to income tax. In addition, 70% of the employee’s annual NIS contributions is deductible in computing chargeable income, and this relief should be applied in every PAYE calculation. Earnings above the personal allowance are taxed at the following rates under the Income Tax Act:
| Chargeable Annual Income | Tax Rate |
|---|---|
| Up to TT$1,000,000 | 25% |
| Above TT$1,000,000 | 30% |
For the majority of employees, the 25% rate will be the applicable rate. The 30% rate applies only to high-income earners whose chargeable income exceeds TT$1,000,000 annually.
Calculating PAYE in Practice
The standard approach is to annualise the employee’s monthly salary, subtract the personal allowance and 70% of the employee’s annual NIS contributions, apply the tax rate to the remainder, and divide the annual tax liability by 12 to arrive at the monthly PAYE deduction. The worked examples below follow this method; they are consistent with the fuller worked payroll examples in the Part III Addendum.
Example 1: Employee earning TT$8,000 per month:
| Step | Calculation | Amount |
|---|---|---|
| Annual gross salary | TT$8,000 × 12 | TT$96,000 |
| Less personal allowance | TT$90,000 | |
| Less 70% NIS relief | TT$432 × 12 × 70% | TT$3,628.80 |
| Chargeable income | TT$96,000 − TT$90,000 − TT$3,628.80 | TT$2,371.20 |
| Annual tax at 25% | TT$2,371.20 × 25% | TT$592.80 |
| Monthly PAYE deduction | TT$592.80 ÷ 12 | TT$49.40 |
Example 2: Employee earning TT$25,000 per month:
| Step | Calculation | Amount |
|---|---|---|
| Annual gross salary | TT$25,000 × 12 | TT$300,000 |
| Less personal allowance | TT$90,000 | |
| Less 70% NIS relief (on ceiling) | TT$734.40 × 12 × 70% | TT$6,168.96 |
| Chargeable income | TT$300,000 − TT$90,000 − TT$6,168.96 | TT$203,831.04 |
| Annual tax at 25% | TT$203,831.04 × 25% | TT$50,957.76 |
| Monthly PAYE deduction | TT$50,957.76 ÷ 12 | TT$4,246.48 |
Remittance and TD4 Obligations
PAYE deducted in any given month must be remitted to the IRD by the 15th of the following month. Late remittance attracts penalties and interest. At year-end, every employer must prepare a TD4 return for each employee, showing gross earnings paid and PAYE deducted for the year. TD4 returns must be submitted to the IRD and distributed to employees by the last day of February of the following year. Failure to issue TD4 certificates on time is a compliance breach that affects employees’ ability to file their personal tax returns accurately.
Practical Insight: Employer Risk The most common PAYE error in small businesses is applying a flat percentage deduction without correctly accounting for the personal allowance. Employers who deduct PAYE as a fixed percentage of gross salary, without annualising the income, applying the allowance, and recalculating, will systematically over-deduct from lower-paid employees and under-deduct from others. Over-deduction is recoverable by the employee but creates administrative burden and erodes trust. Under-deduction creates a tax liability for the employer. The correct method is always to annualise, apply the allowance, calculate the annual tax, and convert to a monthly deduction. Review this calculation whenever an employee receives a salary increase. |
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Template – PAYE Calculation and Tracking Sheet
Use this template for each employee to record the basis of the PAYE calculation and the monthly deduction applied. Retain as part of the payroll register.
| Employee Name | |
|---|---|
| BIR Number | |
| Gross Monthly Salary | TT$ |
| Annualised Gross Salary | TT$ |
| Less: Personal Allowance | TT$90,000 |
| Less: 70% NIS Relief | TT$ (employee annual NIS contribution × 70%) |
| Chargeable Annual Income | TT$ |
| Annual Tax (25% / 30%) | TT$ |
| Monthly PAYE Deduction | TT$ |
| Month | |
| Date Remitted to IRD | |
| IRD Receipt / Reference No. |