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Part of the guideRunning payroll in Nigeria, Ghana and Kenya: an employer's guide
The short answer
From 1 January 2026, under the Nigeria Tax Act 2025, the first ₦800,000 of annual taxable income is taxed at 0%, the next ₦2.2 million at 15%, the next ₦9 million at 18%, the next ₦13 million at 21%, the next ₦25 million at 23% and everything above ₦50 million at 25%. Taxable income is gross pay minus allowable deductions such as pension contributions and rent relief; the old consolidated relief allowance no longer exists. Employees on the ₦70,000 national minimum wage or less pay no PAYE on that employment income.
Nigeria's personal income tax bands changed completely on 1 January 2026, when the Nigeria Tax Act 2025 replaced the Personal Income Tax Act. Any payroll template built in 2025 now gives the wrong answer. This article sets out the new bands, shows how to apply them to a monthly salary, and works through three payslips. For pension, levies, deadlines and the Ghana and Kenya equivalents, see our full guide to running payroll in Nigeria, Ghana and Kenya.
The six bands
The bands are annual and progressive: each rate applies only to the slice of income inside its band, never to the whole salary.
| Annual taxable income | Width of band | Rate | Maximum tax in band |
|---|---|---|---|
| ₦0 to ₦800,000 | ₦800,000 | 0% | ₦0 |
| ₦800,001 to ₦3,000,000 | ₦2,200,000 | 15% | ₦330,000 |
| ₦3,000,001 to ₦12,000,000 | ₦9,000,000 | 18% | ₦1,620,000 |
| ₦12,000,001 to ₦25,000,000 | ₦13,000,000 | 21% | ₦2,730,000 |
| ₦25,000,001 to ₦50,000,000 | ₦25,000,000 | 23% | ₦5,750,000 |
| Above ₦50,000,000 | No limit | 25% | 25% of the excess |
Two rules sit alongside the bands. First, an employee whose gross income from an employment is at or below the national minimum wage, ₦70,000 a month as of October 2026, is exempt from PAYE on that income. Second, the tax is collected through PAYE by the employer and paid to the tax authority of the state where the employee works, by the 10th of the following month.
From gross pay to taxable income
The bands apply to taxable (chargeable) income, not gross pay. To get there, take annual gross pay, including allowances and benefits in kind, and subtract the deductions the law allows. The main ones for employees are:
- The employee's pension contribution under the Pension Reform Act (at least 8% of basic, housing and transport pay).
- Rent relief: 20% of annual rent paid, up to ₦500,000, for tenants who declare it and can prove it. Our article on rent relief in Nigeria covers the evidence employers should hold.
- National Housing Fund contributions, where the employee has chosen to contribute.
- National Health Insurance contributions, life insurance premiums and interest on a loan for an owner-occupied home.
Claims for these deductions should be made in writing, and the employer should keep the supporting documents on file. There is no longer a blanket relief that every employee receives automatically. The consolidated relief allowance, which every employee used to receive automatically, has gone, and nothing replaces it for employees who do not pay rent.
How to calculate monthly PAYE
- Annualise the month's gross pay (multiply by 12, or use the year-to-date method your payroll software applies).
- Subtract the year's allowable deductions to reach annual taxable income.
- Apply the bands slice by slice and add up the tax.
- Divide by 12 for the monthly deduction, then adjust if pay or reliefs change during the year.
If an employee gets a pay rise, a bonus or a new rent declaration part way through the year, recalculate the annual figure on a year-to-date basis and spread the difference over the remaining months. Otherwise the December payslip absorbs a large correction, or the employer reaches January with tax under-deducted. The annual return of each employee's emoluments, due by 31 January, is where any mismatch shows up.
Worked examples
These are illustrations of the arithmetic, not tax advice. Each assumes the employee is a tenant with documented rent, has not opted into the National Housing Fund, and claims no other reliefs.
Example 1: ₦100,000 a month
Gross pay is ₦1,200,000 a year, above the minimum wage, so PAYE applies. Pension at 8% is ₦96,000 a year. Rent of ₦600,000 a year gives rent relief of ₦120,000. Taxable income is ₦1,200,000 − ₦96,000 − ₦120,000 = ₦984,000. The first ₦800,000 is taxed at 0% and the remaining ₦184,000 at 15%, giving ₦27,600 a year, or ₦2,300 a month. Net pay is ₦100,000 − ₦8,000 pension − ₦2,300 tax = ₦89,700.
Example 2: ₦250,000 a month
Assume basic, housing and transport make up the whole ₦250,000. Pension is ₦20,000 a month, or ₦240,000 a year. Rent of ₦900,000 a year gives relief of ₦180,000. Taxable income is ₦3,000,000 − ₦240,000 − ₦180,000 = ₦2,580,000. Tax is 0% on ₦800,000 plus 15% on ₦1,780,000, which is ₦267,000 a year, or ₦22,250 a month. Net pay is ₦207,750.
Example 3: ₦2,000,000 a month
Assume pensionable pay (basic, housing and transport) is ₦1,500,000, so pension is ₦120,000 a month or ₦1,440,000 a year. Rent is ₦6,000,000 a year; 20% would be ₦1,200,000, so the ₦500,000 cap applies. Taxable income is ₦24,000,000 − ₦1,440,000 − ₦500,000 = ₦22,060,000.
| Slice | Rate | Tax |
|---|---|---|
| First ₦800,000 | 0% | ₦0 |
| Next ₦2,200,000 | 15% | ₦330,000 |
| Next ₦9,000,000 | 18% | ₦1,620,000 |
| Remaining ₦10,060,000 | 21% | ₦2,112,600 |
| Total | ₦4,062,600 a year |
Monthly PAYE is ₦338,550, and net pay is ₦2,000,000 − ₦120,000 − ₦338,550 = ₦1,541,450.
Effective tax rates at a glance
Because only the top slice is taxed at the highest rate, the average rate on taxable income is always well below the band rate. The figures below apply the bands to taxable income directly, before any reliefs.
| Annual taxable income | Annual tax | Effective rate |
|---|---|---|
| ₦1,200,000 | ₦60,000 | 5.0% |
| ₦3,000,000 | ₦330,000 | 11.0% |
| ₦6,000,000 | ₦870,000 | 14.5% |
| ₦12,000,000 | ₦1,950,000 | 16.3% |
| ₦24,000,000 | ₦4,470,000 | 18.6% |
| ₦60,000,000 | ₦12,930,000 | 21.6% |
Mistakes to check for in your payroll
- Old bands still loaded. The pre-2026 seven-band table and the consolidated relief allowance must be removed from templates and software.
- Rent relief granted on trust. Apply it only once the employee has declared the rent and you hold the evidence.
- Wrong state. PAYE goes to the state where the employee works, which may not be where your head office is.
- Under-deducting. Failing to deduct tax now carries a 40% administrative penalty on the amount not deducted, and deducting without remitting carries 10% plus interest. The payroll deadlines article sets out the full calendar.
Where Pryme fits
Pryme payroll covers Nigeria, where Naira deposits are held by Solid Allianze Microfinance Bank Ltd, licensed by the CBN and insured by the NDIC up to the applicable limit. Above a threshold you set, a second named approver must sign off before money moves, and Finance and Compliance agents, built and certified by Pryme Intelligence, a separate company, prepare the work inside a mandate you set; nothing moves without approval, above the mandate's ceiling a person decides, and each step sits on an audit trail. Getting the bands, reliefs and state of remittance right remains the employer's duty, so set the PAYE aside on pay day and pay it by the 10th. For the wider picture, including pension and levies, go back to the employer's payroll guide.
Questions people ask
What is the tax-free amount in Nigeria in 2026?
The first ₦800,000 of annual taxable income is taxed at 0%. Separately, an employee whose gross income from an employment is at or below the ₦70,000 monthly minimum wage pays no PAYE on that income.
Is the consolidated relief allowance still applied in 2026?
No. The Nigeria Tax Act 2025 removed it from 1 January 2026. Tenants can claim rent relief of 20% of annual rent, up to ₦500,000, instead.
What is the highest PAYE rate in Nigeria now?
25%, on annual taxable income above ₦50 million. Only the income above that point is taxed at 25%; lower slices are taxed at the lower band rates.
Who do I pay Nigerian PAYE to?
For most private sector employees, the Internal Revenue Service of the state where the employee works. It is due by the 10th of the month after the salary is paid.
Is pension deducted before PAYE is calculated?
Yes. The employee's contribution under the Pension Reform Act is an allowable deduction, so it reduces taxable income before the bands are applied.
Sources
- DLA Piper Africa: FAQs on payroll taxes and employer liability (Nigeria, 2026) · accessed Oct 2026
- Forvis Mazars: Rent Relief Allowance under the 2025 Nigeria Tax Act · accessed Oct 2026
- CountryTaxCalc: Nigeria income tax guide 2026 · accessed Oct 2026
- Afrotools: Nigeria employer payroll compliance 2026 · accessed Oct 2026
- Global Payroll Association: Nigeria, closing the compliance gap under the new tax regime · accessed Oct 2026
- PwC Worldwide Tax Summaries: Nigeria, individual, other taxes · 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.