What is PAYE in Nigeria?

PAYE stands for Pay-As-You-Earn. It is the system where your employer deducts income tax from your salary each month before paying you. The deducted amount is remitted directly to the relevant state tax authority on your behalf.

How much tax do I pay on my salary in Nigeria?

Under the Nigeria Tax Act 2025 (effective January 1, 2026), the first ₦800,000 of annual income is tax-free. After that, rates are 15% on the next ₦2.2 million, 18% on the next ₦9 million, 21% on the next ₦13 million, 23% on the next ₦25 million, and 25% above ₦50 million. Each rate applies only to income within that band, not your total income.

Do I need to file a tax return if my employer deducts PAYE?

Yes. Under NTAA Section 14(3), all employees must file their own annual tax return by March 31 each year, covering all sources of income. This is separate from your employer's PAYE obligations. Failure to file attracts a penalty of ₦100,000 for the first month and ₦50,000 for each subsequent month.

PAYE Guide

How PAYE Works in Nigeria

Everything salaried employees need to know about Pay-As-You-Earn tax under the 2025 reforms.

What is PAYE?

PAYE stands for Pay-As-You-Earn. It is the system where your employer deducts income tax from your salary before paying you. The deducted amount is remitted directly to your state tax authority on your behalf, typically by the 10th of the following month.

Under the Nigeria Tax Act 2025 (NTA), the calculation method changed significantly. The old Consolidated Relief Allowance (CRA) is gone. In its place, you get a flat ₦800,000 tax-free band plus a new rent relief deduction. For most low-to-middle income earners, this means a lower tax bill than before.

PAYE applies to all formal sector employees in Nigeria, regardless of whether you are in the public or private sector. If you receive a salary, your employer is legally required to deduct and remit PAYE on your behalf.

The New Tax Bands

Nigeria uses a progressive tax system. Each band only applies to the portion of your income that falls within that range, not your entire income. A higher band rate does not apply retroactively to income already taxed at a lower rate.

Rate	Income Range	Annual Band	Max Tax in Band
0%	First ₦800,000	Completely tax-free	₦0
15%	Next ₦2,200,000	₦800,001 to ₦3,000,000	Up to ₦330,000
18%	Next ₦9,000,000	₦3,000,001 to ₦12,000,000	Up to ₦1,620,000
21%	Next ₦13,000,000	₦12,000,001 to ₦25,000,000	Up to ₦2,730,000
23%	Next ₦25,000,000	₦25,000,001 to ₦50,000,000	Up to ₦5,750,000
25%	Above ₦50,000,000	No upper limit	25% on excess

Source: Nigeria Tax Act 2025, Fourth Schedule. Effective January 1, 2026.

How Your PAYE is Calculated

A worked example using a ₦500,000 monthly salary (₦6,000,000 per year). This assumes a basic salary of ₦600,000/month for NHF purposes and no rent relief claimed.

Start with gross monthly salary

Annual gross: ₦6,000,000

₦500,000

Subtract pension (8% of gross)

8% of ₦6,000,000

- ₦480,000/year

Subtract NHF (2.5% of basic)

Assuming basic salary = ₦600,000/month

- ₦150,000/year

Taxable income

₦6,000,000 - ₦480,000 - ₦150,000

₦5,370,000/year

First ₦800,000 at 0%

Tax-free band

₦0 tax

Next ₦2,200,000 at 15%

₦2,200,000 x 15%

₦330,000 tax

Remaining ₦2,370,000 at 18%

₦5,370,000 - ₦800,000 - ₦2,200,000 = ₦2,370,000

₦426,600 tax

Total annual tax

₦0 + ₦330,000 + ₦426,600

₦756,600

Monthly PAYE deduction

₦756,600 divided by 12

₦63,050

What Gets Deducted Before Tax

Certain mandatory contributions reduce your taxable income before the PAYE calculation begins. These are not optional for formal sector employees and must be processed by your employer.

Pension (Employee Contribution)

8% of gross salary

Mandatory for formal sector employees under the Pension Reform Act. Reduces your taxable income directly.

National Housing Fund (NHF)

2.5% of basic salary

Contributed to the Federal Mortgage Bank of Nigeria. Deductible from taxable income.

National Health Insurance Scheme (NHIS)

Varies by employer

Employee contributions to NHIS are also deductible from taxable income where applicable.

Rent Relief

The Nigeria Tax Act 2025 introduces a rent relief deduction for individuals who pay rent for their primary residence. You can deduct 20% of your annual rent from your taxable income, up to a maximum of ₦500,000 per year.

How to claim it

1.Obtain a copy of your tenancy agreement or rent receipts showing the amount paid.
2.Provide this documentation to your employer or HR department so they can factor it into your monthly PAYE calculation.
3.If your employer does not process it, you can claim the relief directly when filing your annual self-assessment return.

Example

If you pay ₦3,000,000 per year in rent, your relief is 20% of ₦3,000,000 = ₦600,000, but the cap applies, so you deduct ₦500,000 from your taxable income. At a 15% tax rate, this saves you ₦75,000 in tax per year.

Your Filing Obligation

Even though your employer handles PAYE deductions, you are still legally required to file your own annual tax return. This is mandated by NTAA Section 14(3) and applies to all employees.

The annual return covers all your income sources: salary, freelance work, rental income, investment income, and anything else you earned during the year. Your employer's PAYE filing only covers your employment income and does not substitute for your personal return.

Deadline: March 31 each year

Your annual return must be filed by March 31 covering the previous calendar year (January to December).

Penalty for late filing

Missing the deadline attracts a penalty of ₦100,000 for the first month you are late. Each subsequent month of non-compliance adds ₦50,000 to the penalty.

Where to file

File with the State Internal Revenue Service (SIRS) in the state where you are resident. Most states now have online portals. Your TIN (Tax Identification Number) is required.

Calculate Your PAYE Now

Enter your salary and deductions to see exactly how much PAYE your employer should be deducting each month under the new 2026 rules.

Calculate My PAYE

This guide is for educational purposes only and does not constitute professional tax advice. While we strive for accuracy based on the Nigeria Tax Act 2025 and Nigeria Tax Administration Act 2025, tax law is complex and subject to interpretation and regulatory guidance not yet issued. For official guidance, consult the Nigeria Revenue Service (NRS) or a qualified tax professional.

Sources: Nigeria Tax Act 2025 (Fourth Schedule); Nigeria Tax Administration Act 2025 (Section 14); Pension Reform Act 2014; National Housing Fund Act.