What is PAYE?
Pay As You Earn (PAYE) is a withholding tax system under the Personal Income Tax Act (PITA), as amended. Under PAYE, your employer deducts income tax from your gross salary every month before paying you and remits the deducted amount directly to the relevant State Internal Revenue Service (SIRS) or Federal Inland Revenue Service (FIRS) - depending on where you work.
PAYE applies to all employees in Nigeria - private sector, government, and contract workers - whose income exceeds the tax-free threshold. Self-employed individuals are instead assessed under the Direct Assessment system.
Who Administers PAYE?
- State employees and private sector workers: The State Internal Revenue Service (SIRS) of the state where the employee's principal place of work is located.
- Federal government employees: The Federal Inland Revenue Service (FIRS).
- Expatriates: FIRS handles non-resident employee tax.
Employers must register with the relevant tax authority, file monthly PAYE returns, and remit deducted taxes by the 10th day of the following month.
2026 Nigerian PAYE Tax Bands
Income tax in Nigeria is progressive - you pay higher rates only on the portion of your income that falls within each band. The current bands under the Finance Act are:
| Annual Taxable Income (₦) | Tax Rate | Max Tax in Band |
|---|---|---|
| First ₦300,000 | 7% | ₦21,000 |
| Next ₦300,000 | 11% | ₦33,000 |
| Next ₦500,000 | 15% | ₦75,000 |
| Next ₦500,000 | 19% | ₦95,000 |
| Next ₦1,600,000 | 21% | ₦336,000 |
| Above ₦3,200,000 | 24% | On excess |
Important: These bands apply to annual taxable income, not gross salary. Several statutory deductions are subtracted before the bands are applied.
What is Taxable Income?
Taxable income is your gross annual income minus allowable deductions. The main deductions are:
- Consolidated Relief Allowance (CRA): ₦200,000 + 20% of gross income (whichever is higher). This is the largest deduction for most employees.
- Pension Contribution (Employee's share): 8% of monthly emoluments (basic salary + housing + transport). This is exempt under the Contributory Pension Scheme.
- National Housing Fund (NHF): 2.5% of monthly basic salary (if applicable).
- Life Assurance Premiums: Deductible if paid to a qualifying insurer.
- National Health Insurance Scheme (NHIS): Employee contribution is deductible.
Step-by-Step: How to Calculate Your Monthly PAYE
Let's work through a real example. Suppose your gross monthly salary is ₦500,000 with a breakdown of:
- Basic: ₦250,000
- Housing: ₦125,000
- Transport: ₦75,000
- Other allowances: ₦50,000
Step 1 - Compute Annual Gross Income
₦500,000 × 12 = ₦6,000,000 per year
Step 2 - Compute Statutory Deductions
- Pension (8% of emoluments): 8% × (₦250,000 + ₦125,000 + ₦75,000) × 12 = 8% × ₦450,000 × 12 = ₦432,000
- CRA: ₦200,000 + (20% × ₦6,000,000) = ₦200,000 + ₦1,200,000 = ₦1,400,000
- Total deductions: ₦432,000 + ₦1,400,000 = ₦1,832,000
Step 3 - Compute Annual Taxable Income
₦6,000,000 − ₦1,832,000 = ₦4,168,000
Step 4 - Apply Progressive Tax Bands
- First ₦300,000 × 7% = ₦21,000
- Next ₦300,000 × 11% = ₦33,000
- Next ₦500,000 × 15% = ₦75,000
- Next ₦500,000 × 19% = ₦95,000
- Next ₦1,600,000 × 21% = ₦336,000
- Remaining ₦968,000 × 24% = ₦232,320
- Annual tax = ₦792,320
Step 5 - Monthly PAYE Deduction
₦792,320 ÷ 12 = ₦66,027 per month
Step 6 - Estimated Monthly Take-Home
₦500,000 − ₦66,027 (PAYE) − ₦36,000 (pension) = approximately ₦397,973
Common Mistakes to Avoid
- Applying a flat rate to total income: PAYE is progressive. Only the income in each bracket is taxed at that bracket's rate.
- Ignoring the CRA: Many online calculators get this wrong. The Consolidated Relief Allowance significantly reduces taxable income.
- Confusing gross with net emoluments: Pension is calculated only on basic, housing, and transport - not on all allowances.
- Using old tax bands: Nigeria's Finance Acts update tax thresholds. Always check whether a calculator reflects the current year's rates.
Use Our PAYE Calculator
You can verify any PAYE calculation using our Nigerian PAYE Tax Calculator, which applies the full 2026 progressive bands, CRA, and pension deduction automatically.
Where to Get Official PAYE Information
- Federal Inland Revenue Service: firs.gov.ng
- Personal Income Tax Act (PITA) as amended by the Finance Acts
- Your State Internal Revenue Service for state-level guidance