How to calculate PAYE in Nigeria in 2026 (with a worked example)

The Nigeria Tax Act 2025 replaced the Personal Income Tax Act rules most payroll teams had used for years. Three changes matter most for monthly payroll.

• The first ₦800,000 of annual taxable income is now taxed at 0%, so many lower earners pay no PAYE at all
• The Consolidated Relief Allowance (₦200,000 or 1% of gross, plus 20% of gross) is gone and replaced by a rent relief
• The 1% minimum tax rule for employees no longer applies

PAYE is still progressive: each slice of annual taxable income is taxed at its own rate. The bands below apply to taxable income, which is gross income minus allowable deductions and reliefs, not to gross salary.

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

Add up everything the employee earns in cash for the year: basic salary, housing, transport, and any other allowances. Most Nigerian payrolls are monthly, so multiply the monthly gross by 12. Bonuses, 13th month pay, and arrears are taxable too, and should be included in the month they are paid.

Some deductions are taken off before tax is calculated. The two that apply to almost every salaried employee are:

• Employee pension contribution: 8% of basic, housing, and transport under the Contributory Pension Scheme
• National Housing Fund (NHF): 2.5% of basic salary, where it applies
• Other allowable items where the employee has them, such as NHIS contributions and life assurance premiums

Employees who pay rent can claim relief of 20% of their annual rent, capped at ₦500,000 a year. Collect a rent declaration from each employee, keep supporting evidence on file, and update it when their rent changes. Employees who don't pay rent (for example, homeowners) don't get this relief.

What remains is annual taxable income. Run it through the bands from the bottom up: the first ₦800,000 at 0%, the next ₦2,200,000 at 15%, and so on until the income runs out. The total is the employee's annual PAYE.

Divide the annual PAYE by 12 to get the monthly deduction. PAYE is remitted to the State Internal Revenue Service of the state where the employee lives, generally by the 10th day of the following month. Recalculate whenever pay changes, such as a raise, a bonus, or a new rent declaration.

Take an employee in Lagos on ₦500,000 a month (₦6,000,000 a year). Their structure is 50% basic, 25% housing, 10% transport, and 15% other allowances, and they pay ₦1,200,000 a year in rent.

• Annual gross income: ₦6,000,000
• Pension (8% of basic + housing + transport of ₦5,100,000): ₦408,000
• NHF (2.5% of ₦3,000,000 basic): ₦75,000
• Rent relief (20% of ₦1,200,000, under the ₦500,000 cap): ₦240,000
• Annual taxable income: ₦6,000,000 − ₦408,000 − ₦75,000 − ₦240,000 = ₦5,277,000
• Tax on the first ₦800,000 at 0%: ₦0
• Tax on the next ₦2,200,000 at 15%: ₦330,000
• Tax on the remaining ₦2,277,000 at 18%: ₦409,860
• Annual PAYE: ₦739,860, or ₦61,655 a month
• Monthly net pay: ₦500,000 − ₦34,000 pension − ₦6,250 NHF − ₦61,655 PAYE = ₦398,095

• Still applying the old Consolidated Relief Allowance after January 2026
• Applying the tax bands to gross salary instead of taxable income
• Forgetting that bonuses and arrears change the tax due in the month they are paid
• Remitting to the state where the office is instead of where the employee lives
• Never collecting rent declarations, so employees miss relief they are entitled to

Calculating PAYE by hand for a handful of staff is manageable. Across a growing team, with raises, joiners, leavers, and bonuses every month, spreadsheet errors creep in fast.

234 Solutions comes with the Nigeria Tax Act 2025 rules built in, including rent relief, pension, NHF, and NSITF. Every payroll run is prepared as a draft you review and approve. Payslips show each employee exactly how their tax was worked out, and statutory schedules are ready for your monthly remittances. Book a consultation to see your own salary structure run through it.