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 on January 1, 2026, the rules change from the old Personal Income Tax Act (PITA) calculation. This guide walks you through each PAYE step under the new law, with a worked example that matches the AfroTools calculator.
Source check, June 17, 2026: This guide was refreshed against the Nigeria Tax Act 2025 / fiscal reform materials, the live AfroTools Nigeria PAYE calculator contract, FMBN NHF guidance, PenCom pension rules, and NHIA contribution guidance. It is a planning estimate, not tax advice or a filing substitute.
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 a practical formula. You can also skip straight to our Nigeria PAYE Calculator to get instant results.
What Changed Under the NTA
The 2026 Nigeria Tax Act keeps progressive personal income tax, but changes the relief structure and bands used in payroll estimates. Here are the key changes that affect PAYE calculations:
- Consolidated Relief Allowance (CRA) replaced. Under PITA, CRA reduced taxable income using a flat amount plus a percentage of gross income. Under the 2026 calculator model, the new structure uses a clear tax-free threshold and rent relief instead.
- ₦800,000 tax-free threshold. The first ₦800,000 of annual taxable income is taxed at 0%.
- Rent relief introduced. Rent relief is the lower of 20% of annual rent actually paid or ₦500,000 per year.
- New band thresholds and rates. The 2026 bands move from the old 7% to 24% PITA ladder to 0%, 15%, 18%, 21%, 23% and 25% bands.
- Pension basis remains important. Employee pension is calculated on Basic + Housing + Transport, not total gross salary.
- Development levy is not employee PAYE. The 4% development levy is a company-level charge on assessable profit, not a deduction from employee salary.
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 ₦2,200,000 (₦800K - ₦3.0M) | 15% |
| 3 | Next ₦9,000,000 (₦3.0M - ₦12.0M) | 18% |
| 4 | Next ₦13,000,000 (₦12.0M - ₦25.0M) | 21% |
| 5 | Next ₦25,000,000 (₦25.0M - ₦50.0M) | 23% |
| 6 | Above ₦50,000,000 | 25% |
Note that the first ₦800,000 at 0% is the tax-free threshold. Only taxable income above that amount moves into the higher bands. This is a significant benefit for lower-income earners, because anyone with taxable income of ₦800,000 or less pays zero PAYE under the 2026 bands.
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 and can support the claim, deduct the lower of 20% of annual rent paid or ₦500,000 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 ₦2.2M is taxed at 15%, then the 18% band starts from taxable income above ₦3M.
Step 8: Keep Development Levy Out of Employee PAYE
Do not add the company development levy to an employee PAYE calculation. The 2026 development levy is a company-level charge on assessable profit, not a flat employee salary deduction.
Step 9: Get Monthly PAYE
Divide the total annual PAYE by 12 to get your monthly PAYE deduction.
Worked Example: ₦5,000,000 Gross Salary
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% x (₦2M + ₦1M + ₦1M) | ₦320,000 |
| Rent Relief | Lower of 20% x ₦500K rent or ₦500K cap | ₦100,000 |
| NHF | 2.5% x ₦2,000,000 basic | ₦50,000 |
| Total Deductions | ₦470,000 |
Taxable Income = ₦5,000,000 - ₦470,000 = ₦4,530,000
Tax Calculation
| Band | Income in Band | Rate | Tax |
|---|---|---|---|
| First ₦800K | ₦800,000 | 0% | ₦0 |
| Next ₦2.2M | ₦2,200,000 | 15% | ₦330,000 |
| Remaining taxable income in 18% band | ₦1,530,000 | 18% | ₦275,400 |
| Total Annual PAYE | ₦605,400 | ||
Monthly PAYE = ₦605,400 / 12 = ₦50,450
Monthly Take-Home = (₦5,000,000 / 12) - ₦50,450 - (₦320,000 / 12 pension) - (₦50,000 / 12 NHF) = approximately ₦335,383
That is an effective PAYE rate of about 12.1% on gross income before pension and NHF deductions. Want to run your own numbers? Use the Nigeria PAYE Calculator, it handles 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 2026 NTA estimate:
| 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 | ₦100,000 in this example |
| Taxable Income | ₦3,430,000 | ₦4,530,000 |
| Annual PAYE Tax | ~₦615,200 | ~₦605,400 |
| Monthly PAYE | ~₦51,267 | ~₦50,450 |
| Effective Tax Rate | ~12.3% | ~12.1% |
At the ₦5M level, the 2026 NTA estimate is slightly lower in this worked example because the new bands offset the smaller relief base. The result can change with salary structure, rent paid, pensionable pay and NHF. Run both regimes when reconciling a transition-year payroll.
Pension, NHF & NHIA 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, so check your employment contract. Pension contributions reduce taxable income before the bands are applied.
National Housing Fund (NHF)
NHF is 2.5% of basic salary, deducted monthly for eligible workers and remitted under the National Housing Fund framework. Under the AfroTools payroll model, NHF remains deductible before PAYE.
National Health Insurance Authority (NHIA)
NHIA contribution rules can depend on scheme type, employer policy and state health insurance arrangements. Do not treat NHIA deductions as a PAYE relief item unless your payroll team has current official support for that treatment.
Development Levy
The development levy under the 2026 reform package is a 4% company-level levy on assessable profit. It is relevant for employer and company tax planning, but it is not added to an employee's PAYE computation.
Sources Reviewed
Primary sources reviewed on June 17, 2026:
- Nigeria fiscal reforms portal and tax law materials
- Federal Inland Revenue Service
- FMBN National Housing Fund FAQ
- National Pension Commission
- Nigeria National Health Insurance Authority FAQ
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 tax-free under the Nigeria Tax Act. Taxable income above that amount moves into the 15%, 18%, 21%, 23% and 25% bands.
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.
Rent relief is the lower of 20% of annual rent actually paid or ₦500,000 per year. Keep rent receipts or other evidence before asking payroll to apply it.
The NTA uses 6 graduated bands: 0% on the first ₦800K, 15% on the next ₦2.2M, 18% on the next ₦9M, 21% on the next ₦13M, 23% on the next ₦25M, and 25% on income above ₦50M.
It depends on your income level, rent relief, pensionable salary and NHF deductions. Lower earners benefit from the ₦800K tax-free threshold, while higher earners should compare both regimes using the calculator.