How PAYE Works in Nigeria (2026 Guide)

April 11, 2026

Payroll and People

How PAYE Works in Nigeria (2026 Guide)

Q: Is gratuity still tax-free?

No. Gratuity is now taxable under NTA 2025 -- this reversed the old PITA exemption. If you are planning a long-service exit package, factor this in.

Nankyer Ndom

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Last updated: 7 July 2026. Facts checked against current Nigerian regulation at time of update.

How PAYE Works in Nigeria (2026 Guide)

Quick answer: Under the Nigeria Tax Act 2025, your first ₦800,000 of annual income is tax-free. Above that, you pay graduated rates from 15% up to 25%. The old Consolidated Relief Allowance is gone. The Nigeria Tax Act 2025 replaced the Personal Income Tax Act effective 1 January 2026.

If your accountant recently updated your payroll system and the numbers look different, this is why.

What you will need:

Employee payslip or offer letter (to confirm salary structure)
Tenancy agreement and rent receipts (to claim rent relief)
Employee pension fund administrator (PFA) details
Your state tax authority portal login (e.g., LIRS for Lagos)

Estimated time to compute: 10-15 minutes per employee manually. Payroll software does it in seconds.

What “how PAYE works in Nigeria” means in plain English

PAYE stands for Pay As You Earn. It is income tax deducted from your employee’s salary every month, before they see a kobo. You remit it to the relevant state tax authority on their behalf.

The Nigeria Tax Act 2025 (NTA 2025) overhauled the rules. The new bands are effective from 1 January 2026. If you are reading a guide that mentions “7% on the first ₦300,000” or “CRA of ₦200,000 plus 20% of gross,” that is the old regime. It no longer applies. That 7%/11%/15%/19%/21%/24% band structure is the old PITA regime and is no longer in effect.

The 2026 PAYE tax bands at a glance

These are the NTA 2025 Sixth Schedule bands, effective 1 January 2026:

Annual Chargeable Income	Rate	Max Tax on This Band
First ₦800,000	0%	₦0
Next ₦2,200,000 (₦800K to ₦3M)	15%	₦330,000
Next ₦9,000,000 (₦3M to ₦12M)	18%	₦1,620,000
Next ₦13,000,000 (₦12M to ₦25M)	21%	₦2,730,000
Next ₦25,000,000 (₦25M to ₦50M)	23%	₦5,750,000
Above ₦50,000,000	25%	No cap

“Chargeable income” means what is left of your annual income after you subtract pension, NHF, and any approved reliefs. The bands apply to that number, not to raw gross salary.

Step-by-step: how to compute PAYE

The computation steps are: calculate annual gross emoluments (Basic + Housing + Transport + Other Allowances), subtract statutory deductions and reliefs, apply the bands to the chargeable income annually, then divide the annual PAYE by 12 for the monthly deduction.

Here is each step in practice.

Step 1: Add up annual gross income

Include basic salary, housing allowance, transport allowance, other allowances, bonuses, and overtime. Use the full-year figure.

Step 2: Subtract statutory deductions

Three items come off before you touch the tax bands:

Pension (8% of pensionable emoluments)

The employee rate is 8% and the employer rate is 10%, under the Pension Reform Act 2014. Pensionable emoluments means Basic + Housing + Transport, NOT gross salary.

NHF (2.5% of basic salary)

The NHF rate is 2.5% of gross monthly salary under the National Housing Fund Act. Under the Business Facilitation Act 2022, private-sector employees can opt out. Treat it as opt-in per employee, not a default deduction.

NHIS / health insurance

Health insurance premiums are paid to HMOs on plan-based pricing. There is no longer a single statutory formula for NHIS contributions. Premiums vary by chosen plan. Do not use the old “5% employee + 10% employer of basic” figure for 2026 payroll.

Step 3: Apply rent relief (if claimed)

Under NTA 2025, employees can claim rent relief of 20% of annual rent paid, capped at ₦500,000 per year. This replaces the Consolidated Relief Allowance, which was eliminated under NTA 2025.

The employee must provide a tenancy agreement, rent receipts, and bank transfer evidence. The employer then applies the relief before computing tax.

Step 4: Compute chargeable income

Gross annual income, minus pension, minus NHF, minus rent relief (if applicable) = chargeable income.

Step 5: Apply the bands

Work through the table above from top to bottom. Each portion of income falls into its own band at its own rate.

Step 6: Monthly deduction

Annual PAYE divided by 12 = monthly amount to deduct and remit.

Worked example 1: ₦150,000 monthly salary

Annual gross: ₦1,800,000
Pension (8% of ₦1,800,000 pensionable): minus ₦144,000
NHF (2.5% of basic, assumed ₦75,000/month basic): minus ₦22,500
Chargeable income: ₦1,633,500

Applying the bands:

First ₦800,000 at 0% = ₦0
Remaining ₦833,500 at 15% = ₦125,025

Annual PAYE: ₦125,025
Monthly PAYE: ₦10,419

That monthly figure is what you deduct from the employee’s pay and send to the state tax authority by the 10th of the following month.

Worked example 2: ₦350,000 monthly salary with rent relief

Annual gross: ₦4,200,000
Pension (8% of ₦4,200,000 pensionable): minus ₦336,000
NHF (2.5% of basic, assumed ₦175,000/month basic): minus ₦52,500
Chargeable income before rent relief: ₦3,811,500

Without rent relief:

First ₦800,000 at 0% = ₦0
Next ₦2,200,000 at 15% = ₦330,000
Remaining ₦811,500 at 18% = ₦146,070
Annual PAYE: ₦476,070 | Monthly PAYE: ₦39,673

Now add rent relief (employee pays ₦1,500,000 rent per year):

Relief = 20% × ₦1,500,000 = ₦300,000
New chargeable income: ₦3,811,500 minus ₦300,000 = ₦3,511,500
First ₦800,000 at 0% = ₦0
Next ₦2,200,000 at 15% = ₦330,000
Remaining ₦511,500 at 18% = ₦92,070
Annual PAYE: ₦422,070 | Monthly PAYE: ₦35,173

Rent relief saves this employee ₦4,500 every single month. That is ₦54,000 a year for paperwork that takes 20 minutes to gather.

Employer remittance obligations

The PAYE remittance deadline is the 10th day of the month following the month of deduction. Annual employer returns (Form H1) are due 31 January for the prior tax year.

So if you pay January salaries on 31 January 2026, PAYE must reach the state tax authority by 10 February 2026.

PAYE goes to the state of the employee’s residence, not where your office is located. If your team member lives in Lagos and works at your Lekki office, LIRS (Lagos Internal Revenue Service) gets that PAYE. This matters if you have staff spread across states, because each state has its own filing portal and requirements.

Late payment attracts a 10% penalty plus interest. On a ₦2,000,000 monthly PAYE bill, that is ₦200,000 added straight to your costs.

Common PAYE mistakes

1. Applying pension to gross instead of pensionable emoluments

Pension is computed on Basic + Housing + Transport only, not total gross salary. Many payroll spreadsheets default to gross and quietly overdeduct.

2. Still running CRA calculations

The Consolidated Relief Allowance (formerly ₦200,000 + 20% of gross income) does not apply from 2026 onward. Posts and payroll systems written for the 2026 tax regime must not include CRA in PAYE calculations. If your payroll software still has a CRA field that is active, flag it.

3. Treating NHF as automatic for every employee

Private-sector employees can opt out of NHF contributions. Treat it as opt-in per employee, not a default deduction.

4. Skipping rent relief because “the documentation is too much”

Missing rent relief costs your employee real money. ₦500,000 relief cap at 18% tax rate saves ₦90,000 a year. That is not a rounding error.

5. Using the old PITA bands in 2026

Many pre-2026 sources, including some FIRS pages and most blog content from 2024-2025, still describe the old PITA regime. Check any guide or calculator before trusting it. If it mentions 7% or 24% as a rate, it is outdated.

Frequently asked questions

What if my employer deducts the wrong amount?

You are still liable for the correct tax. File your personal tax return by 31 March and pay any shortfall directly. Your employer’s error does not reduce your obligation.

Can I claim rent relief if my employer pays my rent?

No. Rent relief is for rent you pay from your own taxed income. If your employer covers rent directly, there is nothing for you to claim.

Where does my PAYE actually go?

It goes to the state where you live, not where you work. Lagos residents pay LIRS. Abuja residents pay FCT-IRS. Your employer should be registered with the relevant state board.

How do bonuses affect PAYE?

A bonus is added to your income for the month it is paid. This can push that month’s annualised figure into a higher band. Employers use the annualisation method: take gross for that month, multiply by 12, compute annual tax, divide by 12, subtract what has already been deducted in previous months. The balance is that month’s deduction.

Is gratuity still tax-free?

No. Gratuity is now taxable under NTA 2025 — this reversed the old PITA exemption. If you are planning a long-service exit package, factor this in.

When is the personal tax return deadline?

The annual personal tax return is due 31 March for the prior tax year.

What is the minimum tax under NTA 2025?

Minimum tax is effectively ₦0 because the first ₦800,000 bracket is at 0%.

How payroll software helps

Manual PAYE computation works. It just requires getting every input right, every month, for every employee, with zero tolerance for spreadsheet errors.

Most HR teams running more than five employees move to payroll software to handle the annualisation, the band arithmetic, and the remittance scheduling automatically.

Lint’s Smart Payroll costs ₦500 per employee per payroll run and covers PAYE computation, pension, NHF, payslips, and remittance. The ₦50 bank transfer disbursement fee is waived on Smart Payroll.

If you only need salary disbursement without tax computation, Simple Payroll is ₦50 per employee.

Related tools and sources

FIRS official portal for employer registration and annual returns
Lint Smart Payroll for automated NTA 2025 computation and remittance
PenCom CRS portal for pension remittance confirmation
Your state IRS portal (e.g., LIRS for Lagos) for PAYE filing

One line to remember: The first ₦800,000 is yours. After that, the system takes a cut. Know the bands, claim your relief, and make sure your employer is computing correctly on your behalf.

Published: July 2026. Tax bands sourced from the Nigeria Tax Act 2025, Sixth Schedule. Pension rates sourced from the Pension Reform Act 2014. Always verify current rates with FIRS or a licensed tax adviser before filing.