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The short answer
Yes. A bonus or 13th-month payment is part of an employee's employment income, so it is taxed through PAYE under the Nigeria Tax Act 2025, with the extra tax deducted in the month it is paid. A 13th month is not required by the Labour Act; it becomes compulsory only where the employment contract, staff handbook or a collective agreement promises it.
Is a 13th month compulsory in Nigeria?
Many Nigerian employers pay a 13th month in December, and staff often speak of it as a right. The Labour Act does not say so. It sets rules on written terms, wages, hours, sick pay and holidays, but we found no provision in it requiring a bonus or a 13th-month salary.
That does not mean an employer can always stop paying one. A 13th month becomes an obligation when it is promised in one of these places:
- The employment contract or offer letter ("annual pay is 13 months' basic salary").
- The written statement of terms the Labour Act requires within three months of starting, under section 7(1), if it lists the payment.
- A staff handbook that the contract makes part of the employment terms.
- A collective agreement that applies to the workplace.
Where the contract calls it discretionary ("the company may pay a performance bonus"), the employer has more room. Where it has been paid every year for many years without any such wording, staff may argue it has become an implied term. That is a fact-specific question for a lawyer, and this article is information, not legal advice.
How PAYE applies to bonuses
From 1 January 2026, employees are taxed under the Nigeria Tax Act 2025. Employment income includes salary, allowances and benefits, and a bonus or 13th month is part of that income. The employer deducts the tax through PAYE and remits it to the state internal revenue service of the employee's residence.
The annual bands, as reported by BusinessDay in January 2026, are:
| Chargeable income band | Rate |
|---|---|
| First ₦800,000 | 0% |
| Next ₦2,200,000 | 15% |
| Next ₦9,000,000 | 18% |
| Next ₦13,000,000 | 21% |
| Next ₦25,000,000 | 23% |
| Above ₦50,000,000 | 25% |
Because bands are annual, a bonus is taxed at the employee's top marginal rate for the year. Payroll systems usually work this out by adding the bonus to the year's chargeable income and deducting the extra tax in the month the bonus is paid. Ask your state revenue service if you are unsure how it expects the bonus month to be shown on the monthly schedule.
A worked example
Example only. Ada earns ₦6,000,000 a year. After her pension contribution and rent relief, her chargeable income is ₦5,256,000 (see our step-by-step PAYE example). Her annual tax is ₦736,080. In December her employer pays a ₦500,000 13th month. Her contract computes pension on basic, housing and transport only, so the bonus adds nothing to pension in this example.
- New chargeable income: ₦5,256,000 + ₦500,000 = ₦5,756,000.
- This still sits in the 18% band (which runs from ₦3,000,000 to ₦12,000,000 of chargeable income).
- Extra tax on the bonus: 18% × ₦500,000 = ₦90,000.
- Ada receives ₦500,000 − ₦90,000 = ₦410,000 from the bonus in December, on top of her normal net pay.
If a bonus pushes someone across a band boundary, the part above the boundary is taxed at the higher rate. A ₦2,000,000 bonus for someone at ₦11,000,000 chargeable income would have ₦1,000,000 taxed at 18% and ₦1,000,000 at 21%.
Lower earners: when a bonus is not taxed
The 0% band means some staff pay no PAYE at all, and a small bonus can leave that unchanged. Example only. A cleaner's chargeable income for the year is ₦600,000. A ₦150,000 13th month takes it to ₦750,000, still inside the first ₦800,000, so no tax is due on the bonus. If the 13th month were ₦300,000, chargeable income would be ₦900,000; the ₦100,000 above ₦800,000 is taxed at 15%, so ₦15,000 is deducted and the cleaner keeps ₦285,000 of the bonus.
Run the calculation rather than assuming. Staff near a band boundary are the ones most likely to notice a deduction they did not expect, so explain it on the payslip with the bonus shown as its own line.
Common mistakes employers make
- Paying the bonus in cash or by a separate transfer and leaving it off payroll. It is still employment income.
- Taxing the bonus as if it were a separate person's whole year, using the ₦800,000 zero band again. The zero band applies once per year.
- Promising a 13th month in an offer letter and later calling it discretionary. The written words usually decide.
- Forgetting that a contract may say whether pension is calculated on the bonus. Check the definition used for pension.
What to check first
- Your contracts and handbook: is the 13th month promised or discretionary?
- Your payroll setup: does it add bonuses to annual chargeable income?
- The remittance deadline for the month the bonus is paid; see PAYE remittance timing.
- Current bands, in our 2026 PAYE bands explainer.
Where Pryme fits
Pryme Business Accounts include payroll tools and a Finance agent that can prepare a bonus run with the PAYE worked out for review; a person approves before anything is paid above a set ceiling, and every action is recorded. See the Finance agent.
Questions people ask
Is 13th month salary compulsory in Nigeria?
Not under the Labour Act. It is compulsory only if the contract, handbook or a collective agreement promises it.
Is bonus taxable in Nigeria?
Yes. Bonuses are employment income and are taxed through PAYE in the month they are paid, at the employee's marginal rate.
How much tax will I pay on my 13th month?
It depends on your annual chargeable income. In our example, a ₦500,000 13th month for someone in the 18% band costs ₦90,000 in tax.
Can my employer stop paying 13th month?
If it is written into your contract or a collective agreement, generally not without agreement. If the contract calls it discretionary, the employer has more room. Take advice on your facts.
Sources
- Labour Act, Cap L1 LFN 2004 (PLAC text) · accessed Oct 2026
- BusinessDay: Nigeria Tax Act 2025 personal income tax explainer (12 Jan 2026) · accessed Oct 2026
- Mondaq (S.P.A. Ajibade & Co.): Taxation of income of employees under the tax reform Acts (10 Nov 2025) · accessed Oct 2026
This article is general information, not financial, legal or tax advice. Products described are provided under the terms on this site and are subject to regulation and eligibility.