How to Calculate PAYE Under Nigeria's New Tax Bands in 2026: A Step-by-Step Guide

Nigeria's Pay As You Earn (PAYE) tax has run on a new six-band structure since 1 January 2026 under the Nigeria Tax Act (NTA) and Nigeria Tax Administration Act (NTAA): the first ₦800,000 of annual income is tax-free, then rates climb from 15% to 25% as income rises. To calculate an employee's PAYE correctly, an employer works out taxable income after allowable reliefs, applies these bands, deducts the tax, and remits it to the relevant tax authority by the 10th of the following month.

Eight months into the new regime, many payroll teams are still running old Consolidated Relief Allowance settings, treating gratuity as exempt, or auto-deducting the National Housing Fund without consent — each one a compliance gap that compounds monthly. Here is the playbook.

What are Nigeria's new PAYE tax bands for 2026?

The new structure applies six progressive rates to annual taxable income, replacing the old 7%–24% bands and the old Consolidated Relief Allowance:

• Up to ₦800,000: 0%
• ₦800,001 – ₦3,000,000: 15%
• ₦3,000,001 – ₦12,000,000: 18%
• ₦12,000,001 – ₦25,000,000: 21%
• ₦25,000,001 – ₦50,000,000: 23%
• Above ₦50,000,000: 25%

It's a genuine tax cut for lower earners — the zero-rate band is a significant increase on the old minimum threshold — but the reform also widens what counts as taxable pay, so the effect on any one employee's take-home depends on their full remuneration package.

How do you calculate an employee's PAYE step by step?

1. Start with gross annual remuneration. Under the NTA this now includes salary, allowances, bonuses and 13th-month pay — and gratuity, previously exempt, is now taxable too.
2. Deduct allowable reliefs. The Consolidated Relief Allowance is gone. In its place is a conditional Rent Relief: 20% of annual rent paid, capped at ₦500,000, claimable only with a lease agreement or rent receipt on file. Pension contributions remain deductible.
3. Confirm NHF status. The National Housing Fund's 2.5% deduction is now voluntary for private-sector employees. Deducting it without documented, informed consent is an unauthorised deduction.
4. Arrive at taxable income — gross remuneration minus reliefs and pension.
5. Apply the six bands cumulatively to get the annual tax payable.
6. Divide by the pay periods (usually 12) to get the monthly PAYE deduction, and show it on the payslip.
7. Remit the deducted tax to the correct state tax authority (or the Nigeria Revenue Service, for FCT and non-resident cases) by the statutory deadline.

Worked example: an employee earning ₦6,000,000 a year with ₦1,200,000 in verified annual rent gets ₦240,000 in rent relief (20% of rent, under the ₦500,000 cap), leaving ₦5,760,000 taxable. The first ₦800,000 is tax-free, the next ₦2,200,000 is taxed at 15%, and the remaining ₦2,760,000 at 18% — before pension deductions are even applied.

When must PAYE be remitted, and what happens if you're late?

PAYE deducted from salaries must be remitted on or before the 10th day of the month following the month of payment. Miss it, and the exposure builds fast:

• A late remittance penalty of roughly 10% of the unremitted tax
• Interest on the outstanding amount, typically in the 10%–21% per annum range depending on the tax authority, accruing from the due date until payment
• Additional late-filing penalties stacked on top of the remittance penalty

On a real-world scale, ₦3,000,000 in unremitted PAYE left outstanding for six months can grow to roughly ₦3,675,000 once penalties and interest are added — nearly 23% more, for doing nothing but waiting. Because PAYE is money an employer holds in trust for the state rather than its own tax liability, deliberate non-remittance carries a harder edge under the NTAA: directors and other “responsible officers” of a defaulting company can face administrative sanctions and, in serious cases, criminal liability.

What does this mean for your business?

• Payroll software needs a hard reset, not a patch. Confirm your provider, or in-house spreadsheet, is running the six-band table above, not the old 7%–24% bands or the old CRA formula.
• Get rent relief documentation moving now. Employees claiming rent relief need a lease or receipt on file before year-end reconciliation — retrofitting this in December is painful.
• Re-issue NHF consent forms. A blanket 2.5% deduction without documented opt-in is now a liability, not a default.
• Re-price gratuity and bonus payouts. Finance teams budgeting exit packages or 13th-month bonuses need to build PAYE into the gross cost, since these are no longer exempt or informally treated as such.
• Treat the 10th-of-the-month deadline as non-negotiable. With interest compounding monthly and director-level liability in play, a cash-flow squeeze is a reason to talk to your tax adviser about restructuring — not a reason to delay remittance.

This sits alongside other 2026 changes we've covered, including how businesses can now claim input VAT on services and how to claim a withholding tax credit — all part of the same Nigeria Tax Act 2025 reset that businesses are still working through.

FAQ

Is the National Housing Fund deduction still compulsory in Nigeria? No. The 2.5% NHF deduction for private-sector employees is now voluntary and requires the employee's informed consent — employers should not deduct it automatically without documented opt-in.

Is gratuity taxable in Nigeria now? Yes. Gratuity payments, previously tax-exempt, are now included in taxable remuneration under the Nigeria Tax Act 2025 and must have PAYE deducted before payment.

What is the deadline to remit PAYE to the tax authority? PAYE deducted from employees' salaries must be remitted on or before the 10th day of the month following the month in which the salary was paid. Late remittance attracts a penalty of roughly 10% of the unremitted amount plus accruing interest.

Getting your payroll bands, reliefs and remittance calendar aligned with the Nigeria Tax Act 2025 shouldn't fall on your HR team alone. VOG Global Consult helps Nigerian businesses audit payroll systems, correct PAYE exposure before it compounds, and stay compliant with FIRS/NRS requirements. To book a payroll compliance review, contact VOG Global at Suite 060 to 061, Orago Complex, Area 10, Garki, Abuja.