Salary & Tax Calculator in Nigeria
What is PAYE? A Simple Introduction
PAYE stands for Pay As You Earn. This is Nigeria’s streamlined system for collecting personal income tax directly from your monthly salary. Think of it as a “pay-as-you-go” approach where your employer automatically deducts tax from your paycheck and sends it to the relevant tax authority on your behalf.
This system eliminates the stress of accumulating a large tax bill at year-end. Instead, you contribute to Nigeria’s development month by month, funding essential public services like roads, healthcare facilities, and educational infrastructure. PAYE applies to all employees receiving regular salaries, making tax compliance straightforward and automatic.
Major Changes Coming January 2026: Nigeria Tax Act (NTA) 2025
Nigeria’s tax landscape is about to undergo its most significant transformation in decades. President Bola Ahmed Tinubu signed the Nigeria Tax Act (NTA) 2025 into law in June 2025, with implementation scheduled for January 1, 2026.
Current Status: Until December 31, 2025, Nigeria continues to operate under the existing tax system with rates ranging from 7% to 24% and a ₦300,000 annual tax-free threshold.
What Changes: From January 1, 2026, a completely new progressive tax structure takes effect, featuring a dramatic increase in the tax-free threshold to ₦800,000 annually and revised tax bands ranging from 0% to 25%.
Current PAYE Tax Structure (Until December 31, 2025)
Nigeria currently operates a progressive tax system where higher earners pay higher rates:
| Annual Taxable Income | Current Tax Rate |
|---|---|
| First ₦300,000 | 7% |
| Next ₦300,000 (₦300,001 – ₦600,000) | 11% |
| Next ₦500,000 (₦600,001 – ₦1,100,000) | 15% |
| Next ₦500,000 (₦1,100,001 – ₦1,600,000) | 19% |
| Next ₦1,600,000 (₦1,600,001 – ₦3,200,000) | 21% |
| Above ₦3,200,000 | 24% |
Minimum tax of 1% of gross income applies if taxable income falls below ₦300,000 annually.
New PAYE Tax Structure (From January 1, 2026)
The incoming system introduces more generous provisions for low and middle-income earners:
| Annual Taxable Income | New Tax Rate | What You Pay |
|---|---|---|
| First ₦800,000 | 0% | ₦0 |
| Next ₦2,200,000 (₦800,001 – ₦3,000,000) | 15% | 15% on amount above ₦800,000 |
| Next ₦9,000,000 (₦3,000,001 – ₦12,000,000) | 18% | 18% on amount above ₦3,000,000 |
| Next ₦13,000,000 (₦12,000,001 – ₦25,000,000) | 21% | 21% on amount above ₦12,000,000 |
| Next ₦25,000,000 (₦25,000,001 – ₦50,000,000) | 23% | 23% on amount above ₦25,000,000 |
| Above ₦50,000,000 | 25% | 25% on amount above ₦50,000,000 |
Key Benefits of the New System:
- Tax-free threshold increases by 167% from ₦300,000 to ₦800,000
- If you earn ₦800,000 annually or less (after deductions), you pay zero PAYE tax
- Monthly salary of ₦66,667 or less equals zero PAYE tax
- More progressive structure ensures fairer distribution of tax burden
Revolutionary Rent Relief System (Effective January 2026)
The new tax act eliminates the old Consolidated Relief Allowance (CRA) and introduces a targeted rent relief system:
New Rent Relief Formula:
- 20% of actual annual rent paid
- Maximum relief: ₦500,000 per year
- Requirements: Must provide declarations and supporting documentation
- Important: Only available to individuals who rent (homeowners cannot claim)
How is PAYE Calculated in Nigeria
Understanding your PAYE calculation empowers better financial planning. The process remains fundamentally similar under both systems, with key differences in relief allowances and tax rates.
Calculate Gross Annual Income:
Start with total earnings including salary, allowances, bonuses, and taxable benefits.
Subtract Statutory Deductions Remove contributions to:
- Pension funds (mandatory contributions)
- National Housing Fund (NHF) – 2.5% of gross income
- National Health Insurance Scheme (NHIS)
- Qualifying life insurance premiums
Apply Current Relief (Until December 2025)
Apply the Consolidated Relief Allowance (CRA): the higher of ₦200,000 or 1% of gross income, plus 20% of gross annual income.
Apply New Relief (From January 2026)
Apply the new rent relief: 20% of annual rent paid (maximum ₦500,000) if you’re a tenant.
Apply Tax Bands
Use the appropriate progressive tax rates (current or new system) on your chargeable income.
Calculate Monthly PAYE
Divide annual tax by 12 for monthly deductions.
Practical Example Comparison:
Scenario: Employee earning ₦2,400,000 annually, paying ₦1,200,000 rent
Current System Calculation (2025):
- Gross Income: ₦2,400,000
- Less: Pension (8.33%): ₦200,000
- Less: NHF (2.5%): ₦60,000
- Less: CRA (₦200,000 + 20% of ₦2,400,000): ₦680,000
- Chargeable Income: ₦1,460,000
- Tax Calculation:
- First ₦300,000: ₦21,000 (7%)
- Next ₦300,000: ₦33,000 (11%)
- Next ₦500,000: ₦75,000 (15%)
- Next ₦360,000: ₦68,400 (19%)
- Total Annual Tax: ₦197,400
- Monthly PAYE: ₦16,450
New System Calculation (From 2026):
- Gross Income: ₦2,400,000
- Less: Pension (8.33%): ₦200,000
- Less: NHF (2.5%): ₦60,000
- Less: Rent Relief (20% × ₦1,200,000): ₦240,000
- Chargeable Income: ₦1,900,000
- Tax Calculation:
- First ₦800,000: ₦0 (0%)
- Next ₦1,100,000: ₦165,000 (15%)
- Total Annual Tax: ₦165,000
- Monthly PAYE: ₦13,750
Tax Savings with New System: ₦32,400 annually (₦2,700 monthly)
Why These PAYE Changes Matter for Nigeria
The new PAYE structure represents a fundamental shift toward economic inclusion and fair taxation. By significantly increasing the tax-free threshold, more Nigerian workers will retain their full earnings for basic needs and economic participation.
The reforms also emphasize progressive taxation where higher earners contribute proportionally more, creating a system that better addresses income inequality. Additionally, consolidating multiple tax provisions into one act reduces complexity and compliance costs for both employers and employees.
Revenue optimization becomes more focused on high-yielding, broad-based taxes rather than nuisance taxes that disproportionately affect small businesses and low-income individuals.
How to Use Our PAYE Calculator in Nigeria
Our PAYE calculator accommodates both current and future tax scenarios to help with financial planning:
- Select Tax System: Choose current (2025) or future (2026) calculation method
- Income Input: Enter your monthly or annual gross salary
- Statutory Deductions: Add pension, NHF, and NHIS contributions
- Relief Information: Input CRA details (current) or annual rent paid (future)
- Instant Calculation: Get accurate PAYE estimates based on selected tax system
- Comparison Analysis: See side-by-side comparison of current vs future tax scenarios
The calculator helps you understand both your current tax obligations and plan for the upcoming changes in 2026.
Additional Benefits for Employers (Effective 2026)
The Nigeria Tax Act 2025 provides incentives for employers to support low-income workers:
Enhanced Deductions for Low-Income Workers:
- 50% additional deduction for wage awards to workers earning below ₦100,000 monthly
- Deductions for transportation allowances and subsidies
- Tax credits for net employment increases
Important Legal Disclaimer
This PAYE calculator and guide provide estimated tax calculations based on current Nigerian tax law. The calculator will begin the new tax calculations when the incoming Nigeria Tax Act 2025 takes full effect.
Actual PAYE deductions may vary based on:
- Individual-specific allowances and exemptions
- Regulatory updates and interpretations
- Employer payroll policies
- State-level variations in implementation
For definitive calculations: Always consult with your HR department, qualified tax professional, or contact the appropriate tax authority. For current obligations, contact FIRS. From 2026, the new National Revenue Service (NRS) will handle tax administration.
Takeaway
- Nigeria’s PAYE tax system is undergoing its most significant transformation in decades. While the current system continues until December 31, 2025, the incoming changes represent a major shift toward economic inclusion and progressive taxation.
- The new ₦800,000 tax-free threshold will provide immediate relief to millions of Nigerian workers starting January 1, 2026, while the revised progressive structure ensures sustainable revenue generation for national development.
- Understanding both the current system and upcoming changes enables better financial planning and preparation for the transition. Use our PAYE calculator to explore how these changes will impact your take-home pay and plan your finances accordingly.
- This represents a transformative moment for Nigerian tax policy, positioning taxation as a tool for economic inclusion rather than burden while ensuring adequate revenue for national development priorities.
Frequently Asked Questions
Q: I earn ₦800,000 annually – will I pay zero PAYE? A: From January 1, 2026, yes. If your chargeable income (after deductions and reliefs) is ₦800,000 or less annually, you will pay zero PAYE tax. Until then, current tax rates apply.
Q: What happens to the Consolidated Relief Allowance? A: The CRA remains in effect until December 31, 2025. From January 1, 2026, it is replaced with the new rent relief system.
Q: Can I claim rent relief if I live with family rent-free? A: No, rent relief only applies to actual rent payments with proper documentation starting from 2026.
Q: When exactly do these changes take effect? A: The Nigeria Tax Act 2025 becomes effective January 1, 2026. Current tax rules apply until December 31, 2025.
Q: What should I do if my employer hasn’t updated their payroll system by 2026? A: Contact your HR department and reference the Nigeria Tax Act 2025. Employers will be legally required to implement the new rates from January 1, 2026.
This content reflects both current Nigerian tax law and the incoming Nigeria Tax Act 2025. Tax laws are subject to interpretation and regulatory guidance. The transition from current to new system occurs January 1, 2026. Always seek professional tax advice for specific situations.