PAYE (Pay As You Earn)
PAYE is a system where employers deduct income tax from employees' salaries and wages at source and remit these deductions to the Board of Inland Revenue on behalf of their employees.
The Pay As You Earn (PAYE) system is designed to collect income tax from employment income at source. Employers act as tax collectors, deducting the appropriate amount of tax from employees' salaries and remitting these amounts to the Board of Inland Revenue.
Legal Basis: Income Tax Act, Chapter 75:01 and PAYE Regulations
Key Benefits of PAYE:
- • Ensures regular tax collection throughout the year
- • Reduces burden on employees to pay large tax amounts
- • Provides steady revenue stream for government
- • Simplifies tax compliance for employees
- • Reduces tax evasion and improves collection efficiency
- • Automatic calculation of tax deductions
Employers Required to Operate PAYE:
- • All companies employing staff in Trinidad and Tobago
- • Government ministries and agencies
- • Statutory bodies and state enterprises
- • Non-profit organizations with employees
- • Individual employers with domestic staff
- • Foreign companies with local employees
Employees Subject to PAYE:
- • All employees earning above the tax-free threshold
- • Full-time and part-time workers
- • Temporary and contract employees
- • Directors and senior executives
- • Commission-based employees
- • Employees receiving benefits-in-kind
Income Tax Brackets:
| Income Range | Tax Rate | Description |
|---|---|---|
| First $84,000 | 0% | Personal allowance - tax free |
| Above $84,000 | 25% | Standard rate on excess |
Available Allowances:
| Allowance Type | Amount | Description |
|---|---|---|
| Personal Allowance | $84,000 | Available to all employees |
| Spouse Allowance | $84,000 | If spouse earns less than $84,000 |
| Child Allowance | $9,000 | Per child under 18 or in education |
| Dependent Allowance | $4,500 | Per qualifying dependent |
| Life Insurance | Up to $50,000 | Premiums paid during the year |
PAYE Calculation Example:
Employee earning $120,000 annually with spouse and 2 children:
• Gross Income: $120,000
• Personal Allowance: $84,000
• Spouse Allowance: $84,000 (if spouse earns less)
• Child Allowances: $18,000 (2 × $9,000)
• Total Allowances: $186,000
• Taxable Income: $0 (allowances exceed income)
• Annual Tax: $0
Key Responsibilities:
- Register as PAYE employer with BIR
- Deduct correct amount of tax from employee salaries
- Remit deducted taxes to BIR by 15th of following month
- File monthly PAYE returns
- Issue TD1 certificates to employees annually
- Maintain accurate payroll records
- Submit annual reconciliation
- Provide employee tax statements upon request
Monthly Deadlines:
- • PAYE remittance: 15th of following month
- • Monthly return filing: 15th of following month
- • Late payment penalty: 5% per month
- • Late filing penalty: $500 per month
Annual Requirements:
- • TD1 certificates: By February 28
- • Annual reconciliation: By March 31
- • Employee tax statements: Upon request
- • Payroll audit preparation: As required
TD1 certificates are annual statements that employers must provide to employees showing total earnings and tax deducted during the year.
TD1 Certificate Must Include:
- • Employee's full name and address
- • Employer's name and BIR number
- • Total gross earnings for the year
- • Total PAYE tax deducted
- • Allowances claimed
- • Benefits-in-kind (if applicable)
- • Employer's signature and date
Important for Employees:
- • Required for annual income tax filing
- • Proof of tax paid during employment
- • Needed for loan applications and visa processing
- • Must be retained for 7 years
- Employee personal information forms
- Payroll records and registers
- Bank statements showing tax remittances
- TD1 certificates issued to employees
- Previous PAYE returns
- Employee contracts and salary agreements
- Records of allowances and deductions
- Annual reconciliation statements
Record Retention:
- • All PAYE records must be kept for 7 years
- • Records must be available for BIR inspection
- • Electronic records must be backed up
- • Payroll software data should be regularly archived