How PAYE Is Calculated in Nigeria in 2026: The New Tax Act Explained With Real Examples

If your January 2026 payslip looked different from your December one, this is why: the Nigeria Tax Act 2025 took effect on 1 January 2026 and rewrote how PAYE (Pay As You Earn) is calculated for every employee in Nigeria. The old Consolidated Relief Allowance is gone, the tax bands are new, and low earners are treated very differently.

Plenty of explainers online still quote the old rules — or worse, quote the new ones wrong. The bands below are taken from the text of the Act itself, and they're the same ones behind our PAYE calculator.

The new tax bands

PAYE is charged on your chargeable income (more on that below), in six bands:

| Annual chargeable income | Rate | |---|---| | First ₦800,000 | 0% | | Next ₦2,200,000 (to ₦3m) | 15% | | Next ₦9,000,000 (to ₦12m) | 18% | | Next ₦13,000,000 (to ₦25m) | 21% | | Next ₦25,000,000 (to ₦50m) | 23% | | Above ₦50,000,000 | 25% |

Two things stand out. First, the 0% band: the first ₦800,000 of chargeable income is completely tax-free for everyone. Second, the top rate is now 25%, up from 24% under the old law — but it only kicks in above ₦50 million a year.

Minimum wage earners pay nothing — by explicit exemption

If you earn the national minimum wage (₦70,000/month, ₦840,000/year) or less, you pay zero PAYE. This is an explicit exemption in the Act, not just a side effect of the ₦800,000 free band — which matters, because ₦840,000 a year is actually slightly above the free band. Without the exemption, a minimum wage earner would owe a small amount of tax. The law says they owe none at all.

What gets deducted before tax: chargeable income

Your tax isn't charged on your gross salary. First, these come off:

Pension — your 8% employee contribution remains tax-deductible.
NHF — 2.5%, now voluntary for private-sector employees rather than automatic.
NHIS — 5% of basic salary where your employer runs a scheme (employee share).
Rent relief — the big new one: 20% of the annual rent you actually pay, capped at ₦500,000 per year. This replaces the old Consolidated Relief Allowance (CRA), which is abolished.

That last change is the one that moves most people's numbers. Under the old system, everyone got CRA automatically (₦200,000 plus 20% of gross income). Now, your main relief depends on rent you actually pay — good news for renters, less generous for homeowners and those living rent-free.

Worked example 1: ₦200,000/month

Gross: ₦2,400,000/year. Pension (8%): ₦192,000. No rent relief claimed.

Chargeable income: ₦2,208,000

First ₦800,000 → ₦0
Remaining ₦1,408,000 at 15% → ₦211,200

Annual PAYE: ₦211,200 (₦17,600/month). Effective tax rate: 8.8% of gross. Monthly take-home after pension and tax: ₦166,400.

Worked example 2: ₦500,000/month, paying ₦1.5m/year rent

Gross: ₦6,000,000/year. Pension (8%): ₦480,000. Rent relief: 20% × ₦1,500,000 = ₦300,000 (under the ₦500,000 cap, so fully allowed).

Chargeable income: ₦5,220,000

First ₦800,000 → ₦0
Next ₦2,200,000 at 15% → ₦330,000
Remaining ₦2,220,000 at 18% → ₦399,600

Annual PAYE: ₦729,600 (₦60,800/month). Effective tax rate: 12.2% of gross. Monthly take-home after pension and tax: ₦399,200.

Notice what the rent relief did: without it, this earner's tax would be ₦54,000/year higher. If you pay rent and your employer isn't applying the relief, that's money you're leaving on the table.

What to check on your own payslip

Three quick questions:

Is your employer using the new bands? Some payroll systems were slow to update in early 2026. If your January–March payslips used old rates, you may be due a correction.
Is your rent relief applied? It's not automatic — it depends on rent you actually pay, so your employer needs the information.
Are NHF and NHIS being deducted with your consent? NHF is now voluntary for private-sector employees.

Every salary is slightly different — pension arrangements, rent, other reliefs like life insurance premiums all shift the number. Rather than doing the band math by hand, put your own figures in and see the full breakdown:

Calculate your exact take-home pay on the PAYE calculator →

Tax bands and reliefs in this article are taken from the Nigeria Tax Act 2025, effective 1 January 2026, and were verified against the text of the Act. One simplification to note: statutory deductions like pension are strictly calculated on basic + housing + transport rather than full gross salary — our examples use full gross for clarity, so treat the results as close estimates rather than payslip-exact figures. This is general information, not tax advice; for complex situations, speak to a qualified tax practitioner.