PAYE in Nigeria from 2026: new tax bands, reliefs and examples

We earn a commission if you buy through some links on this page, at no extra cost to you. It never affects the order. How we make money.

PAYE in Nigeria changed substantially on 1 January 2026, when the Nigeria Tax Act 2025 replaced the old personal income tax rules for employees. The consolidated relief allowance is gone, a new set of bands starts with a tax-free first NGN 800,000, and a rent relief has been introduced. This guide explains how PAYE now works, walks through worked examples at three salary levels, and covers remittance, filing and the mistakes employers most often make in the first year of the new rules.

What PAYE is in Nigeria

Pay As You Earn is the method of collecting personal income tax from employees. Each month, the employer calculates the tax due on the employee's pay, deducts it, and pays it to the relevant tax authority. PAYE covers salaries, wages, allowances, bonuses and most benefits in kind.

In Nigeria, the tax on employees is generally collected by the tax authority of the state where the employee is resident, such as the Lagos State Internal Revenue Service for Lagos residents, while some categories, such as certain federal employees and residents of the Federal Capital Territory, are handled federally. The 2025 tax reforms reorganised federal tax administration as well, so employers should confirm current registration and filing channels with their state authority.

What changed in 2026

The Nigeria Tax Act 2025, effective from 1 January 2026, consolidated several older tax laws and changed the personal income tax calculation. The main changes for PAYE are:

• New bands, with the first NGN 800,000 of annual taxable income taxed at 0%.
• No consolidated relief allowance (CRA), which previously gave a large deduction based on gross income.
• Rent relief of 20% of annual rent paid, up to NGN 500,000.
• Exemption for minimum wage earners.
• Pension contributions, National Housing Fund contributions and certain insurance premiums remain deductible.

Any payroll system, spreadsheet or calculator built before 2026 must be updated. Many low and middle earners pay less tax under the new rules, while some higher earners pay more.

The 2026 PAYE bands

Annual taxable income is taxed in these bands:

• First NGN 800,000: 0%.
• Next NGN 2,200,000 (up to NGN 3,000,000): 15%.
• Next NGN 9,000,000 (up to NGN 12,000,000): 18%.
• Next NGN 13,000,000 (up to NGN 25,000,000): 21%.
• Next NGN 25,000,000 (up to NGN 50,000,000): 23%.
• Above NGN 50,000,000: 25%.

As with all graduated systems, each rate applies only to the income within its band. Employers usually calculate the annual tax on annualised pay and divide by twelve for the monthly deduction, adjusting when pay changes during the year.

Deductions and reliefs

Before applying the bands, deduct from gross income:

• Employee pension contributions under the Pension Reform Act, at least 8% of monthly emoluments (basic, housing and transport).
• National Housing Fund contributions of 2.5% of basic salary, where deducted.
• National Health Insurance contributions, where applicable.
• Life insurance or annuity premiums within the allowed rules.
• Rent relief: 20% of the annual rent the employee pays for their home, capped at NGN 500,000, with evidence of rent.

Employers need documents for reliefs that depend on the employee's circumstances, such as a tenancy agreement or rent receipt for rent relief. Ask for these at onboarding and at the start of each year.

How to calculate PAYE step by step

1. Work out annual gross income: basic salary, allowances, bonuses and taxable benefits.
2. Deduct the employee's pension contribution (8% of basic, housing and transport, or more if contracted).
3. Deduct NHF and other allowable contributions.
4. Deduct rent relief, if the employee has provided evidence.
5. The result is annual taxable income.
6. Apply the 2026 bands to get annual tax.
7. Divide by twelve for the monthly PAYE deduction.

Our Nigeria PAYE calculator applies these steps automatically.

Worked example: NGN 300,000 a month

An employee earns NGN 3,600,000 a year (NGN 300,000 a month), with all pay counted as emoluments for pension, and pays NGN 600,000 a year in rent.

• Pension (8%): NGN 288,000.
• Rent relief (20% of 600,000): NGN 120,000.
• Taxable income: 3,600,000 − 288,000 − 120,000 = NGN 3,192,000.
• Tax: 0% on the first 800,000; 15% on the next 2,200,000 = 330,000; 18% on the remaining 192,000 = 34,560.
• Annual PAYE: NGN 364,560, about NGN 30,380 a month.

This example ignores NHF and other deductions to keep the arithmetic clear.

Worked example: NGN 500,000 a month

Annual pay NGN 6,000,000; rent NGN 1,200,000 a year.

• Pension (8%): NGN 480,000.
• Rent relief (20% of 1,200,000): NGN 240,000.
• Taxable income: NGN 5,280,000.
• Tax: 0 + 330,000 + 18% of 2,280,000 (410,400) = NGN 740,400.
• Monthly PAYE: about NGN 61,700.

Worked example: NGN 1,000,000 a month

Annual pay NGN 12,000,000; rent NGN 2,400,000 a year.

• Pension (8%): NGN 960,000.
• Rent relief: 20% of 2,400,000 is 480,000, below the NGN 500,000 cap, so NGN 480,000.
• Taxable income: NGN 10,560,000.
• Tax: 0 + 330,000 + 18% of 7,560,000 (1,360,800) = NGN 1,690,800.
• Monthly PAYE: about NGN 140,900.

At higher salaries, the rent relief cap is reached and more income falls in the 21% and higher bands.

Minimum wage exemption

Employees earning the national minimum wage, currently NGN 70,000 a month, are exempt from personal income tax under the new rules. In practice, the tax-free first NGN 800,000 of taxable income also means that many low earners pay little or no PAYE. Employers should still keep records for these employees and include them in annual returns.

Benefits in kind and allowances

Allowances such as housing, transport, utility, meal and leave allowances are generally taxable as part of income. Benefits in kind, such as a company car or accommodation provided by the employer, are also taxable, usually at values set by rules. Reimbursement of genuine business expenses incurred for the employer, supported by receipts, is generally not taxable income.

The split between basic pay and allowances matters for pension and NHF, which are based on emoluments and basic salary respectively, so design salary structures carefully and consistently.

Remitting PAYE

Employers must remit PAYE deducted from employees to the relevant tax authority by the deadline set by law, generally by the tenth day of the following month. Late remittance attracts penalties and interest. Most state tax authorities offer online portals and accept payments through banks and payment platforms, with a schedule showing each employee's pay and tax.

If your employees live in different states, you remit each employee's tax to their own state of residence. Keep a register of employees' residential states and update it when they move.

Annual returns

Employers file an annual return of all employees' emoluments and tax deducted with each relevant state tax authority, generally by the end of January for the previous year. Employees receive a record of their pay and tax for the year. Some employees, such as those with other income, also file their own returns. Accurate monthly records make the annual return straightforward.

Pension and PAYE together

Pension contributions are both a deduction from pay and a separate remittance. The employer deducts the employee's 8%, adds its own minimum 10%, and remits both to the employee's Pension Fund Administrator, generally within seven working days after paying salaries. The employee's 8% reduces taxable income for PAYE; the employer's 10% is a business cost and is not part of the employee's taxable pay.

Late pension remittance attracts penalties from PenCom, so align pension and PAYE processes in your monthly payroll calendar.

Payroll software for Nigeria

Because the rules changed in 2026, check that any payroll software you use has been updated for the Nigeria Tax Act 2025, including the new bands, removal of CRA and the rent relief. Compare local options in our Nigeria payroll software ranking and Nigeria payroll software guide.

If you employ in Nigeria from abroad without a local entity, an employer of record runs PAYE and pension for you; see how to hire employees in Nigeria and the EOR ranking.

VAT and other business taxes

PAYE is one of several taxes a Nigerian business handles. VAT applies to most goods and services, with changes under the 2025 reforms, and companies pay company income tax and other levies. Our Nigeria VAT calculator helps with VAT arithmetic, and VAT for small businesses in Africa gives an overview. For collecting payments, see accepting online payments in Nigeria.

Common mistakes in 2026

• Still applying the consolidated relief allowance.
• Using the old bands starting at 7%.
• Giving rent relief without evidence, or above the NGN 500,000 cap.
• Calculating pension on basic salary only when emoluments include housing and transport.
• Remitting to the wrong state.
• Missing the monthly deadline.

Communicating the changes to employees

The 2026 changes mean many employees' net pay changed in January. Explain the change in plain terms: the new tax-free first band, the end of the old relief, and the rent relief, which requires evidence. Invite employees to provide rent documents, and show them a payslip comparison if their net pay moved noticeably. Clear communication reduces confusion and ensures employees claim reliefs they are entitled to.

Old rules vs new rules: what employees notice

Under the old rules, the consolidated relief allowance gave every employee a deduction of NGN 200,000 or 1% of gross income, whichever was higher, plus 20% of gross income. Tax then started at 7% on the first band. Under the new rules, there is no CRA, but the first NGN 800,000 of taxable income is tax-free, and bands start at 15%.

The effect varies. Many lower and middle earners see lower PAYE, especially those who claim rent relief. Some higher earners see more tax, because the top band of 25% now applies above NGN 50 million and the CRA no longer shelters a large part of income. Employees who do not provide rent evidence miss a relief that could reduce their tax. When employees ask why their pay changed, show both calculations side by side using their real figures; it builds trust and encourages them to claim what they are entitled to.

A month-end PAYE checklist for Nigerian employers

1. Confirm new joiners, leavers and pay changes for the month.
2. Check that each employee's state of residence is up to date.
3. Confirm pension emoluments (basic, housing, transport) for each employee.
4. Apply rent relief only where evidence is on file, within the cap.
5. Run payroll and review any large changes in net pay.
6. Pay salaries, then remit pension to PFAs within seven working days.
7. Remit PAYE to each state authority by the deadline, with schedules.
8. File receipts and payroll reports for the annual return.

A consistent routine prevents most errors. Our guide to global payroll covers how this fits alongside payroll in other countries if you employ in several.

Questions