KRA Explains How Employed Kenyans With Side Hustles Should File Annual Income Tax Returns
In a public notice released on Tuesday, February 3, the tax authority clarified that salaried employees with side hustles are legally required to declare all sources of income in a single annual income tax return. This includes earnings from salaried employment as well as income generated from secondary activities such as freelancing, consultancy, farming, rental properties, and online work.
According to KRA, the clarification targets a growing number of taxpayers who assume that Pay As You Earn (PAYE) deducted by employers fully settles their tax obligations, even when they earn additional income elsewhere.
“Employees who earn income from other sources in addition to their salaries are required to declare all income earned within the year in one return,” KRA stated. “This applies to income from freelancing, consultancy, digital platforms, agribusiness, rental income, and other side businesses.”
The authority explained that Kenya’s income tax system is based on the principle of total income assessment, meaning tax liability is calculated by combining all earnings accrued by an individual within a financial year. PAYE deducted by employers is treated as a credit when computing the final tax payable.
KRA noted that failure to declare secondary income amounts to under-declaration, an offence that may attract penalties, interest, or enforcement action if discovered during audits or compliance checks.
“PAYE does not exempt an individual from declaring other income earned during the year,” the authority said, adding that taxpayers must accurately report both employment and non-employment income through the iTax platform.
The clarification comes at a time when side hustles have become increasingly common among Kenyan workers, driven by the rising cost of living, digital job opportunities, and the growth of the gig economy. Many salaried employees now supplement their incomes through online freelancing, ride-hailing services, farming projects, small retail businesses, and rental investments.
KRA further advised taxpayers to keep proper records of income and expenses related to their side businesses to ensure accurate reporting. Allowable expenses incurred in generating additional income may be deducted, provided they are supported by relevant documentation.
“Taxpayers are encouraged to maintain proper records for all income-generating activities to enable correct computation of taxable income,” the authority said.
The announcement also aligns with KRA’s broader push to expand the tax base and improve compliance. Recent data from the authority indicates that while over 22 million individuals are registered with KRA PINs, fewer than half are active taxpayers, with an even smaller number consistently meeting their obligations.
Tax experts say the clarification is timely and necessary, noting that many Kenyans unknowingly expose themselves to penalties by filing incomplete returns.
As the June 30 filing deadline approaches, KRA urged taxpayers to seek assistance through its service centres, online helpdesk, and public education forums if unsure about how to declare multiple income streams.
“We urge taxpayers to file accurate and complete returns to avoid penalties and interest,” KRA emphasized.
The authority reiterated that voluntary compliance remains the most effective way for individuals to meet their tax obligations while supporting national development through revenue collection.
ALSO READ: Kenya and Tanzania Appear in Newly Released Epstein Files Linked to U.S. Billionaires
KRA Explains How Employed Kenyans With Side Hustles Should File Annual Income Tax Returns
