How to calculate PAYE in Nigeria: five steps
PAYE is calculated on annual chargeable income, then divided by twelve — never on the month's gross directly. Work through these five steps in order.
- 1
Annualise the gross pay
Multiply monthly gross by twelve, including regular allowances (housing, transport, utility) and any guaranteed thirteenth month. Irregular one-off payments are taxed in the month they are paid.
- 2
Deduct pension and other statutory contributions
Pension is 8% of basic + housing + transport, not of gross. Deduct NHF (2.5% of basic) only where the employee has opted in, plus NHIS and approved life assurance premiums where they apply.
- 3
Deduct rent relief
Take the lower of 20% of annual rent paid or ₦500,000 — and only where the employee has declared the rent in writing. This replaces the abolished Consolidated Relief Allowance.
- 4
Apply the 2026 bands to chargeable income
Chargeable income is gross less the deductions above. Tax the first ₦800,000 at 0%, the next ₦2,200,000 at 15%, the next ₦9,000,000 at 18%, the next ₦13,000,000 at 21%, the next ₦25,000,000 at 23% and anything above ₦50,000,000 at 25%. Add the band amounts together.
- 5
Divide by twelve and remit
Annual PAYE divided by twelve is the monthly deduction. Remit to the internal revenue service of the state where the employee is resident by the 10th of the following month, and file the employer annual return (Form H1) by 31 January.
Rather not do the arithmetic? Our free Nigeria PAYE calculator runs all five steps from a monthly salary and shows the annual and monthly tax. It is also embedded further down this page.
What changed on 1 January 2026
Six new bands, top rate 25%
The old 7%–24% ladder is gone. The new ladder runs 0%, 15%, 18%, 21%, 23% and 25%, and the top rate only bites above ₦50 million of chargeable income.
First ₦800,000 is tax free
No resident pays PAYE on the first ₦800,000 of chargeable income in a year. At the ₦70,000 national minimum wage, most low earners fall out of PAYE entirely once pension is deducted.
Consolidated Relief Allowance abolished
The old CRA — ₦200,000 plus 20% of gross — no longer exists. If your payroll template still contains a CRA line, it is producing the wrong number.
Rent relief replaces it
Employees may deduct the lower of 20% of annual rent paid or ₦500,000 — but only where the rent is declared. No declaration, no relief.
The 1% minimum tax is gone
The old floor that taxed low earners with heavy reliefs has been removed, so reliefs now genuinely reduce the bill to zero rather than to 1% of gross.
A renamed regulator
Federal administration sits with the Nigeria Revenue Service (the renamed FIRS). State PAYE remittance still goes to your state internal revenue service by the 10th of the following month.
Old bands vs new bands
Both ladders apply to annual chargeable income, not monthly gross. Annualise, apply the bands, then divide the tax by twelve.
Until 31 Dec 2025 (PITA)
- First ₦300,0007%
- Next ₦300,00011%
- Next ₦500,00015%
- Next ₦500,00019%
- Next ₦1,600,00021%
- Above ₦3,200,00024%
From 1 Jan 2026 (Nigeria Tax Act 2025)
- First ₦800,0000%
- Next ₦2,200,00015%
- Next ₦9,000,00018%
- Next ₦13,000,00021%
- Next ₦25,000,00023%
- Above ₦50,000,00025%
PAYE calculator: estimate your monthly tax
Enter a monthly salary and the calculator applies the 2026 bands, pension, optional NHF and rent relief, then shows the annual and monthly PAYE.
PAYE calculator (2026 rules)
Enter your monthly gross pay to estimate PAYE under the Nigeria Tax Act 2025. Assumes a 60% basic / 20% housing / 10% transport structure.
Monthly PAYE
₦61,520
Monthly take-home
₦402,480
Effective rate
12.3%
| Annual gross | ₦6,000,000 |
| Less pension | (₦432,000) |
| Less NHF | (₦0) |
| Less rent relief | (₦300,000) |
| Chargeable income | ₦5,268,000 |
| Tax on ₦800,000 at 0% | ₦0 |
| Tax on ₦2,200,000 at 15% | ₦330,000 |
| Tax on ₦2,268,000 at 18% | ₦408,240 |
| Annual PAYE | ₦738,240 |
Estimate only. Actual PAYE depends on your exact pay structure and approved reliefs — confirm with your tax adviser.
Powered by Talento HRIS — the same 2026 PAYE engine runs payroll for full Nigerian teams.
Worked example: ₦6,000,000 a year
Take a staff member on ₦6,000,000 gross, structured 60% basic, 20% housing, 10% transport and 10% other allowances, paying ₦1,500,000 a year in rent and opting out of NHF.
| Annual gross | ₦6,000,000 |
| Pensionable pay (basic + housing + transport) | ₦5,400,000 |
| Less pension at 8% | (₦432,000) |
| Less rent relief (20% of ₦1,500,000, capped at ₦500,000) | (₦300,000) |
| Chargeable income | ₦5,268,000 |
| Tax on first ₦800,000 at 0% | ₦0 |
| Tax on next ₦2,200,000 at 15% | ₦330,000 |
| Tax on remaining ₦2,268,000 at 18% | ₦408,240 |
| Annual PAYE | ₦738,240 |
| Monthly PAYE | ₦61,520 |
That is an effective rate of about 12.3% of gross. Run the same employee through the 2025 rules and the bill is materially higher, because CRA relief was worth less than the new zero-rated band for most mid-level salaries.
Worked example: ₦100,000 a month
Gross ₦1,200,000 a year, same structure, ₦600,000 rent. Pension takes ₦86,400 and rent relief takes ₦120,000, leaving chargeable income of ₦993,600. Only ₦193,600 sits above the zero-rated band, taxed at 15% — annual PAYE of ₦29,040, or ₦2,420 a month.
At the ₦70,000 national minimum wage (₦840,000 a year), pension alone pushes chargeable income below ₦800,000, so PAYE is nil. This is the headline benefit of the reform for low earners — but only if payroll is configured correctly.
What employers must actually do
- Reconfigure payroll: remove CRA, add a rent-relief field, load the six new bands. Do this before your next run, not at year end.
- Collect rent declarations from staff in writing, with the annual amount and address, and keep them on file for audit.
- Confirm pension is calculated on basic + housing + transport (8% employee, minimum 10% employer), not on gross.
- Treat NHF as opt-in: employees now choose whether 2.5% of basic is deducted, so capture the election in writing.
- Re-run net-pay comparisons for every band before you announce anything — most staff gain, but heavily allowance-loaded packages can move differently.
- Reissue payslips that show reliefs separately, so employees can see why their net pay changed.
- Keep remitting PAYE to the state IRS by the 10th, and file annual employer returns (Form H1) by 31 January.
Five mistakes we are already seeing
- Leaving the CRA line in a legacy payroll spreadsheet and quietly under-deducting all year.
- Applying rent relief without a signed declaration — the deduction fails on audit and the employer carries the liability.
- Computing PAYE monthly on the month's gross instead of annualising, then dividing by twelve.
- Forgetting that PAYE is remitted to the state where the employee is resident, not where the head office sits.
- Announcing 'everyone takes home more' before running the actual comparison for senior packages.
This guide is general information for Nigerian employers, not tax advice. Confirm your specific position with your tax adviser or your state internal revenue service before filing.
Getting your payroll ready
Most of the pain here is data, not law: pay structures that were never properly split into basic, housing and transport, and rent declarations nobody collected. Talento HRIS holds the employee record and pay structure so the new bands compute cleanly, and our HR advisory work covers the reconfiguration and the staff communication that goes with it.
Also read our guide to Nigerian labour laws and recent changes, which covers the statutory obligations sitting alongside PAYE, and our breakdown of the real cost of employing staff in Nigeria, which totals employer pension, NSITF, ITF and HMO on top of the salary you budget. If you are pricing an entry-level role, start with the ₦70,000 minimum wage and its statutory add-ons.
Powered by Talento HRIS — our Nigerian payroll and HR system, which applies these same 2026 bands automatically on every pay run.