If you are an employee or an employer in Nigeria, understanding how your taxes are calculated is essential. Often, people confuse PAYE (Pay As You Earn) with Personal Income Tax (PIT), thinking they are two different taxes. In reality, PAYE is simply the system or method used to collect Personal Income Tax from employees directly from their monthly salaries.

With the introduction of the landmark Nigeria Tax Act 2025, which took effect on January 1, 2026, the entire landscape of personal taxation in Nigeria has shifted. The old Personal Income Tax Act (PITA) has been repealed, introducing major changes to tax bands, reliefs, and administrative bodies.

Whether you are a payroll manager trying to stay compliant or an employee trying to understand your payslip, this guide breaks down everything you need to know about PAYE in Nigeria today.

Key Features of the 2026 Tax Regime

The new tax laws have streamlined the system to benefit low and middle-income earners while adjusting rates for high net-worth individuals. Here is what has changed:

• New Administrative Bodies: While PIT remains a State matter (paid to your state of residence’s Internal Revenue Service, e.g., LIRS in Lagos), federal taxes are now managed by the Nigeria Revenue Service (NRS), which replaced the Federal Inland Revenue Service (FIRS).
• Minimum Wage Exemption: Employees earning the national minimum wage or less (₦70,000 per month / ₦840,000 annually) are completely exempt from PAYE.
• Abolition of Old Reliefs: The old Consolidated Relief Allowance (CRA) and the mandatory 1% minimum tax have been completely abolished, as noted in recent KPMG analyses on the 2025 reforms. Instead, the government introduced a generous 0% tax band and targeted reliefs.

The New 2026 PAYE Tax Bands

Nigeria operates a progressive tax system. This means you do not pay a single flat rate on your entire income; rather, your income is sliced into bands, and different rates apply to different portions of your income.

Here are the current rates on Annual Chargeable Income:

Because of the ₦800,000 zero-percent band, low and middle-income earners take home more of their money, while top earners (above ₦25 million) face slightly higher effective tax rates.

How to Calculate PAYE (Chargeable Income)

To find out exactly how much should be deducted from a salary, you have to determine the “Chargeable Income.” Here is the standard step-by-step process used in any sample personal income tax calculation:

Step 1: Calculate Total Emoluments

Add up the basic salary, housing, transport, bonuses, other allowances, and taxable benefits-in-kind.

Step 2: Subtract Eligible Deductions

You are allowed to remove certain mandatory contributions and approved expenses from your total income before tax is applied. These include:

• Pension Contribution: Usually 8% of Basic + Housing + Transport.
• NHF: National Housing Fund (2.5% of basic salary).
• NHIS: National Health Insurance Scheme contributions.
• Life Assurance / Annuity Premiums.
• Mortgage Interest: Interest paid on loans for owner-occupied residential property.
• Rent Relief: (See next section).

You can review a comprehensive list of taxable and non-taxable elements in the PwC tax summaries for individual taxes.

Step 3: Apply the Tax Bands

Whatever money is left after step 2 is your Chargeable Income. You then apply the progressive tax bands table above to get the annual tax liability, and divide by 12 to get the monthly PAYE deduction.

New Rent Relief Explained

One of the most popular additions in the new tax act is Rent Relief. To ease the housing burden, tenants can now claim a deduction on their taxes for rent paid.

• The Rule: You can deduct the lower of 20% of your annual rent OR ₦500,000.
• The Catch: It is not automatic. To claim this, employees must provide hard evidence to their payroll department or when filing annual returns. You need your tenancy agreement, receipts, and your landlord’s details (Name, Contact, Tax ID/NIN).
• Note: Homeowners or those living in free company accommodation do not qualify for this specific relief.

Employer Obligations and Deadlines

Employers act as the collection agents for the government. If you run a business, you must adhere strictly to the Joint Revenue Board guidelines to avoid severe penalties and interest:

1. Deduct and Remit: Calculate and deduct the correct tax monthly. You must remit this to the relevant State Internal Revenue Service (SIRS) by the 10th day of the following month.
2. File Returns: File monthly payment schedules and comprehensive annual returns by January 31st for the preceding year.
3. Record Keeping: Maintain meticulous records of employee emoluments, claimed reliefs, and tax deducted. Issue tax deduction certificates to employees.

Self-employed individuals or those with significant non-employment income do not use PAYE; they file under the Direct Assessment system.

Frequently Asked Questions (FAQs)

What is the difference between PIT and PAYE?

Personal Income Tax (PIT) is the actual tax levied on the income of individuals. PAYE (Pay As You Earn) is simply the administrative method used by employers to deduct this tax directly from an employee’s salary every month.

Is minimum wage taxable in Nigeria?

No. Under the current tax regime, employees earning the national minimum wage of ₦70,000 per month (₦840,000 annually) or less are completely exempt from PAYE.

Who do I pay my PAYE tax to?

PAYE is paid to the State Internal Revenue Service (SIRS) of the state where the employee resides, not where the company is headquartered. For example, if you work remotely from Lagos for a company in Abuja, your PAYE goes to the Lagos State Internal Revenue Service (LIRS).

How do I claim the new rent relief?

Rent relief must be proven. You must submit your tenancy agreement, rent receipts, and your landlord’s details (including their Tax ID or NIN) to your employer’s HR/Payroll department so they can apply the deduction before calculating your monthly tax. Alternatively, you can claim it when filing your individual annual tax returns.