If you earn a salary in Nigeria, understanding how Pay-As-You-Earn (PAYE) tax works is essential. With the Nigeria Tax Act (NTA) taking effect in 2026, the rules have changed significantly from the old Personal Income Tax Act (PITA). This guide walks you through every step of calculating your PAYE tax under the new law, with real numbers and a worked example.
Whether you are an employee trying to verify your payslip, an HR professional setting up payroll, or a business owner paying yourself a salary, this article gives you the exact formula. You can also skip straight to our Nigeria PAYE Calculator to get instant results.
What Changed Under the NTA
The Nigeria Tax Act 2026 replaced PITA with a fundamentally different approach to personal income tax. Here are the key changes that affect PAYE calculations:
- Consolidated Relief Allowance (CRA) abolished. Under PITA, you received a flat ₦200,000 + 20% of gross income as relief. The NTA scraps this entirely.
- ₦800,000 tax-free threshold. The first ₦800,000 of taxable income is now exempt from tax — a straightforward zero-rate band that replaces the complex CRA formula.
- Rent relief introduced. You can claim up to ₦200,000 per year (or actual rent paid, whichever is lower) as a deduction from gross income.
- New 6-band structure. The tax rates have been restructured from PITA's 6 bands (7% to 24%) to a new 6-band system with different income thresholds.
- Pension basis clarified. Pension contribution is calculated on Basic + Housing + Transport, not total gross salary.
- Development Levy. A new flat ₦4,000 annual levy applies to all taxable employees.
For a detailed comparison of every change, read our full article on Nigeria Tax Act 2026: Everything That Changed for Employees.
2026 PAYE Tax Bands
Under the NTA, taxable income (after all allowable deductions) is taxed using the following graduated bands:
| Band | Taxable Income Range | Rate |
|---|---|---|
| 1 | First ₦800,000 | 0% |
| 2 | Next ₦800,000 (₦800K – ₦1.6M) | 7% |
| 3 | Next ₦400,000 (₦1.6M – ₦2.0M) | 11% |
| 4 | Next ₦1,100,000 (₦2.0M – ₦3.1M) | 15% |
| 5 | Next ₦1,600,000 (₦3.1M – ₦4.7M) | 19% |
| 6 | Next ₦3,200,000 (₦4.7M – ₦7.9M) | 21% |
| 7 | Above ₦7,900,000 | 24% |
Note that the first ₦800,000 at 0% is the tax-free threshold. Only income above this amount gets taxed. This is a significant benefit for lower-income earners — anyone earning ₦800,000 or less per year pays zero PAYE tax.
Step-by-Step PAYE Calculation
Follow these steps to calculate your monthly PAYE tax under the 2026 NTA:
Step 1: Determine Your Gross Annual Income
Add up all taxable emoluments: basic salary, housing allowance, transport allowance, and any other regular allowances paid by your employer. Multiply by 12 if you have monthly figures.
Step 2: Calculate Pension Contribution
Employee pension is 8% of (Basic + Housing + Transport). Under the Pension Reform Act, if your employer structures your pay as Basic (e.g., 40%), Housing (e.g., 20%), and Transport (e.g., 20%), then pension is 8% of those three components combined. Some employers use a different split, so check your offer letter.
Step 3: Deduct Pension from Gross
Subtract your annual pension contribution from gross income. Pension is tax-exempt under the NTA.
Step 4: Deduct Rent Relief
If you pay rent, deduct the lower of ₦200,000 or your actual annual rent from the amount in Step 3.
Step 5: Deduct NHF Contribution
The National Housing Fund contribution is 2.5% of basic salary. This is also tax-deductible under the NTA.
Step 6: Calculate Taxable Income
Your taxable income = Gross Income − Pension − Rent Relief − NHF. This is the figure you apply the tax bands to.
Step 7: Apply Tax Bands
Run the taxable income through each band sequentially. The first ₦800K is tax-free, the next ₦800K is at 7%, and so on up the table.
Step 8: Add Development Levy
Add the flat ₦4,000 annual Development Levy. This is not based on income — every taxable employee pays it.
Step 9: Get Monthly PAYE
Divide the total annual tax by 12 to get your monthly PAYE deduction.
Worked Example: ₦5,000,000 Gross Salary
Let us work through a real example. Assume an employee with the following package:
- Annual Gross Salary: ₦5,000,000
- Basic Salary: ₦2,000,000 (40% of gross)
- Housing Allowance: ₦1,000,000 (20% of gross)
- Transport Allowance: ₦1,000,000 (20% of gross)
- Other Allowances: ₦1,000,000 (20% of gross)
- Annual Rent Paid: ₦500,000
Deductions
| Deduction | Calculation | Amount |
|---|---|---|
| Pension (Employee 8%) | 8% × (₦2M + ₦1M + ₦1M) | ₦320,000 |
| Rent Relief | Lower of ₦200K or ₦500K rent | ₦200,000 |
| NHF | 2.5% × ₦2,000,000 basic | ₦50,000 |
| Total Deductions | ₦570,000 |
Taxable Income = ₦5,000,000 − ₦570,000 = ₦4,430,000
Tax Calculation
| Band | Income in Band | Rate | Tax |
|---|---|---|---|
| First ₦800K | ₦800,000 | 0% | ₦0 |
| Next ₦800K | ₦800,000 | 7% | ₦56,000 |
| Next ₦400K | ₦400,000 | 11% | ₦44,000 |
| Next ₦1,100K | ₦1,100,000 | 15% | ₦165,000 |
| Next ₦1,330K | ₦1,330,000 | 19% | ₦252,700 |
| Total Annual Tax | ₦517,700 | ||
| + Development Levy | ₦4,000 | ||
| Grand Total Annual Tax | ₦521,700 | ||
Monthly PAYE = ₦521,700 ÷ 12 = ₦43,475
Monthly Take-Home = (₦5,000,000 ÷ 12) − ₦43,475 − (₦320,000 ÷ 12 pension) − (₦50,000 ÷ 12 NHF) = approximately ₦356,692
That is an effective tax rate of about 10.4% on gross income. Want to run your own numbers? Use the Nigeria PAYE Calculator — it handles all the maths instantly.
PITA vs NTA: Side-by-Side Comparison
For the same ₦5,000,000 gross salary, here is how the old PITA system compares to the NTA:
| Item | PITA (Old) | NTA 2026 (New) |
|---|---|---|
| Relief Method | CRA: ₦200K + 20% of Gross | ₦800K tax-free threshold + Rent Relief |
| CRA / Threshold | ₦1,200,000 | ₦800,000 (0% band) |
| Pension Deductible? | Yes | Yes |
| NHF Deductible? | Yes | Yes |
| Rent Relief | None | Up to ₦200,000 |
| Taxable Income | ₦3,430,000 | ₦4,430,000 |
| Annual PAYE Tax | ~₦462,200 | ~₦521,700 |
| Monthly PAYE | ~₦38,517 | ~₦43,475 |
| Effective Tax Rate | ~9.2% | ~10.4% |
At the ₦5M level, the NTA results in roughly ₦5,000 more per month in taxes compared to PITA. The CRA under PITA was more generous for mid-to-high earners because 20% of gross income could be very large. However, the NTA is significantly better for low-income earners — anyone earning under ₦800,000 per year now pays zero tax, which was not the case under PITA.
For a complete breakdown of every NTA change including NHIS, employer obligations, and the Development Levy, see our Nigeria Tax Act 2026 guide.
Pension, NHF & NHIS Under the NTA
Pension (Employee Contribution)
Under the Pension Reform Act 2014, the minimum employee contribution is 8% of Basic + Housing + Transport. Some employers use a different pensionable base — always check your employment contract. Pension contributions are fully deductible for tax purposes, meaning they reduce your taxable income before the bands are applied.
National Housing Fund (NHF)
NHF is 2.5% of basic salary, deducted monthly. Under the NTA, this remains tax-deductible. It is mandatory for employees earning the national minimum wage or above.
National Health Insurance (NHIS)
The employee contributes 5% of basic salary towards health insurance under the National Health Insurance Authority Act. However, unlike pension and NHF, NHIS contributions are not tax-deductible under the NTA — they are deducted from your salary after tax has been calculated.
Development Levy
The NTA introduced a flat ₦4,000 per year Development Levy for all individuals liable to tax. This is not percentage-based — it is the same whether you earn ₦1M or ₦50M. Your employer deducts it from your first month's salary or spreads it across the year.
Calculate Your Exact Take-Home Pay
Enter your salary and see your PAYE, pension, NHF, and net pay instantly — updated for the 2026 Nigeria Tax Act.
Nigeria PAYE Calculator →Frequently Asked Questions
The first ₦800,000 of annual taxable income is completely tax-free under the Nigeria Tax Act. This replaces the old Consolidated Relief Allowance (CRA) system under PITA, which gave ₦200,000 + 20% of gross income as relief.
Employee pension contribution is 8% of Basic + Housing + Transport (not total gross salary). If your employer structures your pay differently, check your contract for the pensionable components. Pension is fully tax-deductible.
The NTA introduced a rent relief of ₦200,000 per year or your actual rent paid, whichever is lower. You need to provide evidence of rent payment to your employer to claim this deduction.
The NTA uses 7 graduated bands: 0% on the first ₦800K, 7% on the next ₦800K, 11% on the next ₦400K, 15% on the next ₦1.1M, 19% on the next ₦1.6M, 21% on the next ₦3.2M, and 24% on income above ₦7.9M.
It depends on your income level. For low-income earners under ₦800K annually, the NTA is significantly better — they pay zero PAYE tax. For mid-to-high earners above ₦1.5M, the NTA typically results in slightly higher taxes because the CRA under PITA was more generous at higher income levels.