How PAYE Works Under the Nigeria Tax Act 2025

Since 1 January 2026, PAYE in Nigeria has been calculated under the Nigeria Tax Act 2025, which replaced the Personal Income Tax Act. The structure is simpler than the old regime: no consolidated relief allowance, a tax-free first ₦800,000, and six bands up to 25%. This guide walks through the calculation one step at a time, then puts real numbers through it.

What changed, in one table

The removal of CRA and the introduction of rent relief are reported consistently across professional summaries (Mondaq; TheCable).

Step 1: Start with gross emoluments

PAYE begins with everything the employer pays the employee in the year: basic salary, housing, transport and other allowances, bonuses and taxable benefits in kind. If you run payroll monthly, the cleanest approach is to annualise, work out the annual tax, then divide by twelve, and recalculate when pay changes during the year.

Step 2: Take off the deductions the Act allows

The Act keeps a short list of deductions and adds rent relief (Mondaq):

• Pension contributions under the Pension Reform Act 2014. For most employees that is the 8% employee share, explained in our pension guide.
• National Housing Fund (NHF) contributions.
• National Health Insurance contributions.
• Life insurance premiums and deferred annuities.
• Interest on a loan for an owner-occupied home.
• Rent relief: the lower of 20% of the annual rent the employee pays and ₦500,000.

Two points are still argued over in commentary. Some writers read rent relief as available only to tenants, others to all income earners; the tenant reading is the more common one. And the relief depends on the employee declaring the rent they actually pay, so employers should collect a written declaration and keep it with the payroll records. Without evidence, a claim can be rejected.

Step 3: Apply the bands

What's left is chargeable income. The Act taxes it in cumulative bands (Mondaq / Adeola Oyinlade & Co):

Sources differ slightly on whether someone earning exactly ₦800,000 is "fully exempt" or whether the exemption is for income below ₦800,000. In practice the band works the same way: the first ₦800,000 of chargeable income attracts no tax.

A worked example

Chiamaka Obi is an accountant in Ikeja. Her pay for 2026:

She rents a flat for ₦1,500,000 a year and contributes to NHF.

Deductions

• Pension: 8% of basic + housing + transport = 8% × ₦4,800,000 = ₦384,000
• NHF: 2.5% of basic = 2.5% × ₦3,000,000 = ₦75,000
• Rent relief: 20% × ₦1,500,000 = ₦300,000, which is under the ₦500,000 cap, so ₦300,000

Total deductions: ₦384,000 + ₦75,000 + ₦300,000 = ₦759,000

Chargeable income: ₦6,000,000 − ₦759,000 = ₦5,241,000

Tax by band

• First ₦800,000 at 0% = ₦0
• Next ₦2,200,000 at 15% = ₦330,000
• Remaining ₦2,241,000 (₦5,241,000 − ₦3,000,000) at 18% = ₦403,380

Annual PAYE: ₦733,380. Monthly: ₦733,380 ÷ 12 = ₦61,115. Her effective rate on gross pay is about 12.2%.

Notice what does the work here. Rent relief saved her ₦300,000 × 18% = ₦54,000 a year, because it came off income taxed at her top band. If she stops renting, her PAYE rises by that amount, which is why a change of address is a payroll event, not just an HR record.

Step 4: Remit, then file

PAYE is a state tax: it goes to the internal revenue service of the state where the employee is resident, not to the NRS. Most guides put the monthly remittance deadline at the 10th day of the following month (Mondaq). One compliance guide we reviewed gives the 21st instead; we found no statutory support for that date, and the 10th is the safer working assumption.

Employers also file an annual return of emoluments by 31 January for the previous year. State services can extend that date: Edo State, for example, extended the 2025 return to 14 February 2026 (Edo State IRS). Check your state's notices each January.

Where payroll teams go wrong

• Calculating on gross instead of chargeable income. Forgetting pension or NHF overstates PAYE every month.
• Treating rent relief as automatic. It needs the employee's rent figure and evidence.
• Not recalculating mid-year. A pay rise in July changes the annual figure; a fixed monthly amount set in January will under-deduct.
• Paying to the wrong state. It follows the employee's residence. Staff who move from Lagos to Ogun change the destination.
• Running it in a spreadsheet one person understands. Formulas break quietly. Our guide to payroll management in Nigeria covers a monthly routine that holds up.

How Flux helps

Flux Payroll calculates PAYE, pension, NHF, NSITF and ITF on every pay run and shows each employee's deductions on their payslip. Pay runs go through approval steps, and the payroll audit trail records who changed what. Flux tracks the statutory amounts and prepares the remittance schedules; you pay them to the relevant state service. Staff can see their own tax history through self-service, which cuts the "why did my tax go up?" emails. See how Flux Payroll works.