How to Calculate PAYE Tax in Nigeria (2026 Rules)

Short answer: Under the Nigeria Tax Act 2026, calculate taxable income (gross emoluments minus pension, rent relief, and applicable NHF), apply the progressive annual bands, then divide by 12 for monthly PAYE. The first ₦800,000 of annual taxable income is taxed at 0%.

Employees search this when a payslip PAYE line looks wrong. Employers search it when setting up payroll. Both need the same formula.

What changed in 2026

The Nigeria Tax Act 2025 took effect 1 January 2026. Key shifts from the old PITA-style math:

• New tax bands with a higher zero-rate threshold
• Rent relief replaces the old consolidated relief allowance (CRA) approach
• Clearer rules on when bonuses and one-off pay become taxable

Always confirm with official guidance or a qualified adviser for edge cases. This article is a practical walkthrough, not legal advice.

Step 1: Start with gross emoluments

Add regular monthly earnings:

• Basic salary
• Housing allowance
• Transport allowance
• Other recurring allowances

Annual gross = monthly gross × 12 (adjust if pay is not perfectly monthly).

Step 2: Deduct pension (employee share)

Employee pension is typically 8% of pensionable emoluments (basic + housing + transport).

Annual employee pension = 8% × annual pensionable pay.

Step 3: Apply rent relief

Rent relief is generally the lower of 20% of annual rent paid or ₦500,000.

You need actual rent paid to claim this in payroll. Many employers collect a declaration at the start of the year.

Step 4: Deduct NHF where applicable

NHF is often 2.5% of gross. Treatment in private sector payroll varies; some employers omit it. Use what your company policy and law require.

Step 5: Arrive at taxable income

Annual taxable income ≈ annual gross − employee pension − rent relief − NHF (if applied).

Step 6: Apply 2026 tax bands

Tax is computed progressively: each band applies only to the slice inside it, not your whole income.

Step 7: Monthly PAYE

Monthly PAYE = annual tax ÷ 12.

Round according to your payroll policy; stay consistent month to month.

Worked example (simplified)

Assume:

• Monthly gross: ₦500,000 → annual gross ₦6,000,000
• Pensionable pay equals gross
• Employee pension: 8% → ₦480,000 per year
• Rent relief: ₦500,000 (capped)
• No NHF for this example

Taxable income ≈ ₦6,000,000 − ₦480,000 − ₦500,000 = ₦5,020,000

Band math (annual):

• First ₦800,000 @ 0% = ₦0
• Next ₦2,200,000 @ 15% = ₦330,000
• Remaining ₦2,020,000 @ 18% = ₦363,600

Annual tax ≈ ₦693,600 → Monthly PAYE ≈ ₦57,800

Your real number shifts with rent declared, NHF, bonuses, and mid-year raises. Use payroll software or a current calculator to avoid hand errors.

Minimum wage and exemptions

National minimum wage earners may be fully tax-exempt under current rules. Military salaries have separate treatment. If you are near exemption thresholds, small gross changes can flip PAYE dramatically.

What employers should document

• Rent relief declarations
• Pension basis (which allowances are pensionable)
• Mid-year raise effective dates
• One-off bonuses (tax timing may differ from regular salary)

Good records make January reconciliation less painful.

For employees checking a payslip

Ask HR for:

1. Taxable income used this month
2. Whether rent relief was applied
3. Whether a bonus was taxed in a separate run

Compare to the steps above. Disputes resolve faster with numbers, not vibes.