PAYE in Nigeria 2026: How to Calculate Staff Tax Under the New Tax Law

If your payroll still uses last year's formula, some of your staff are paying the wrong tax. From 1 January 2026 the Nigeria Tax Act 2025 replaced the old PAYE rules, and every PAYE calculation in Nigeria now works differently: new tax bands, a ₦800,000 tax-free band, and rent relief in place of the Consolidated Relief Allowance (CRA).

Most staff on lower and middle salaries pay less than before. But a few employees can end up paying more, especially higher earners whose rent is not recorded. It is HR and finance who answer the questions when payslips change, and the employer who carries the penalties when deductions are wrong.

This guide walks through the new rules, a full worked example, a monthly tax table by salary, and a checklist to get your payroll right.

This is a practical guide, not tax advice. Confirm specific cases with your tax adviser or your State Internal Revenue Service.

The new PAYE tax bands for 2026

Tax is now charged on each slice of an employee's yearly chargeable income (pay after reliefs), at a rising rate. The first ₦800,000 is taxed at 0%.

Under the old law, the bands started at 7% and topped out at 24% from ₦3.2 million. The new structure taxes more of a high salary at higher rates, but the bigger tax-free slice protects lower earners.

Rent relief replaces CRA

The old Consolidated Relief Allowance gave everyone ₦200,000 (or 1% of gross pay, if higher) plus 20% of gross pay, automatically. That allowance is gone.

In its place, an employee who rents can claim rent relief of 20% of the annual rent they actually pay, up to a maximum of ₦500,000 a year. The cap is reached at ₦2.5 million rent a year.

• Only tenants qualify. Staff living in their own homes or rent-free get no rent relief.
• It is not automatic. The employee must declare the rent paid to you, the employer, with evidence such as a receipt or tenancy agreement.
• Keep the records. Employers must hold audit-ready rent documents for the tax authority.
• Shared rent counts only for the employee's own share. Rent paid for several years at once is spread across those years.

This is the change most payrolls are getting wrong. If you have not collected rent details from your staff, their PAYE calculation is higher than it should be.

Other deductions that reduce PAYE

These still come off pay before tax is charged, when the employee makes them and you have the evidence:

• Pension contributions under the Pension Reform Act (usually 8% of basic, housing and transport)
• National Health Insurance contributions
• Life insurance or annuity premiums
• Interest on a mortgage for the employee's own home
• National Housing Fund (NHF) contributions, where made. Some advisers note NHF is now voluntary for private-sector staff, so confirm before you stop or keep deducting it.

Minimum wage earners pay no PAYE

Employees earning the national minimum wage of ₦70,000 a month or less are exempt from PAYE. Their payslips should show zero tax.

A worked PAYE calculation, step by step

Amina earns ₦500,000 a month (₦6,000,000 a year). Her basic, housing and transport add up to ₦400,000 a month, and she pays ₦1,200,000 a year in rent.

1. Gross annual pay: ₦500,000 × 12 = ₦6,000,000
2. Pension (8% of basic, housing and transport): 8% × ₦4,800,000 = ₦384,000
3. Rent relief: 20% × ₦1,200,000 = ₦240,000 (below the ₦500,000 cap)
4. Chargeable income: ₦6,000,000 − ₦384,000 − ₦240,000 = ₦5,376,000
5. Tax by band:
   • First ₦800,000 at 0% = ₦0
   • Next ₦2,200,000 at 15% = ₦330,000
   • Remaining ₦2,376,000 at 18% = ₦427,680
6. Annual PAYE: ₦757,680, which is ₦63,140 a month

Under the old rules Amina paid about ₦66,987 a month, so she now pays about ₦3,847 less each month. Without her rent recorded, her new PAYE would be ₦66,740 a month, almost no saving at all.

Monthly PAYE by salary in 2026

Find the closest monthly salary to see roughly what an employee should pay. The second column shows the same employee once their rent is recorded.

Assumptions: basic, housing and transport are 80% of gross pay; pension is 8% of that; annual rent is a quarter of annual pay, up to ₦2.5 million. No NHF, health insurance or other deductions. Your staff's figures will differ with their actual pay structure.

One surprise in the numbers: between about ₦340,000 and ₦470,000 a month, and above about ₦1.3 million a month, an employee with no rent relief can pay slightly more than under the old law. Collecting rent details is what keeps their tax down.

Employer checklist for PAYE in 2026

Work through this list before your next PAYE calculation.

1. Update your payroll formula to the six new bands and the ₦800,000 tax-free slice. Remove CRA completely.
2. Collect rent details from every employee who rents: annual rent, plus a receipt or tenancy agreement. Record it before you run payroll, not after.
3. Check each employee's deductions: pension, health insurance, life insurance, mortgage interest and NHF, with evidence on file.
4. Exempt minimum wage earners on ₦70,000 a month or less.
5. Add bonuses and 13th-month pay to annual income. They can push an employee into a higher band.
6. Tax gratuity before paying exiting staff. Gratuity is now taxed using the same bands. Severance pay is tax-free up to ₦50 million.
7. Value benefits in kind, such as a company car or housing, at up to 5% of the asset's cost a year. Staff meals, uniforms and work tools are excluded.
8. Remit PAYE monthly to the State Internal Revenue Service where each employee lives, by its deadline (commonly the 10th of the following month).
9. File annual returns by 31 January for the previous year.

What getting PAYE wrong costs

The penalties fall on the employer, not the employee:

• Failing to deduct tax: a penalty of 40% of the amount that should have been deducted
• Failing to remit tax deducted: 10% of the unpaid amount, plus interest at the Central Bank rate until it is paid
• Failing to file returns: ₦100,000 for the first month, then ₦50,000 for every month after

Common PAYE calculation mistakes in 2026

• Leaving the old CRA formula in a spreadsheet that nobody owns
• Applying rent relief to staff who own their homes
• Using gross pay instead of rent paid to calculate rent relief
• Forgetting to tax the 13th month or gratuity
• Keeping no copy of the rent receipts that justify each employee's relief

Run PAYE without the spreadsheet

YAD HR's payroll calculates PAYE, pension and NHF from your organisation's own rates, with overrides for individual staff, and exports a bank payment file for salary upload. Employees see their payslips in their own portal, so fewer "why did my tax change?" questions reach HR.

See every YAD HR payroll feature, or book a free demo and we'll run your current payroll structure through it.

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