Understanding how to calculate tax on your salary has become essential financial knowledge for every working Nigerian in 2026. While payroll departments handle deductions automatically, knowing the process empowers you to verify your payslip and plan your finances effectively.
What is PAYE Tax in Nigeria?
PAYE (Pay As You Earn) represents the personal income tax that employers deduct from employee salaries each month and remit to state governments. This system applies to both public and private sector workers across Nigeria. The Federal Inland Revenue Service (FIRS) designed PAYE to ensure citizens contribute to public services according to their earning capacity.
Although payroll officers manage these calculations, understanding the process helps you confirm deduction accuracy, compare job offers intelligently, and manage your budget with confidence.
Understanding Taxable Income in Nigeria
Before calculating your tax liability, you must identify what constitutes taxable income. The Nigerian government considers various earnings and allowances when determining your PAYE obligations.
Components of taxable income include:
- Basic salary
- Housing allowance
- Transport allowance
- Utility allowance
- Meal allowance
- Bonus payments
- Leave allowance
- Overtime or shift allowances
When combined, these elements form your gross income, which serves as the foundation for PAYE calculations.
Non-taxable components that reduce your tax burden include:
- Pension contributions
- National Housing Fund (NHF) contributions
- Life insurance premiums
- Health insurance contributions
Nigeria's 2026 PAYE Tax Rates
Nigeria employs a progressive tax system where higher earners pay increased rates. The 2026 personal income tax bands structure as follows:
- First ₦300,000: 7%
- Next ₦300,000: 11%
- Next ₦500,000: 15%
- Next ₦500,000: 19%
- Next ₦1,600,000: 21%
- Above ₦3,200,000: 24%
These tax bands form the core framework for salary tax calculations throughout Nigeria.
Essential Tax Reliefs You Should Know
Tax reliefs significantly reduce your taxable income, thereby lowering your overall tax burden. The most substantial relief comes through the Consolidated Relief Allowance (CRA), calculated as 20% of your gross income plus a flat ₦200,000 deduction.
Other important reliefs include pension contributions (typically 8% of monthly salary), National Housing Fund contributions, and various insurance premiums. These deductions occur before tax application, making them crucial for accurate PAYE calculations.
Step-by-Step PAYE Calculation Guide
Follow this straightforward method to calculate your salary tax for 2026:
Step 1: Calculate Annual Gross Income
Combine your basic salary, all allowances, bonuses, and other taxable payments to determine your annual gross income.
Step 2: Calculate Total Reliefs
Sum your pension contributions, NHF contributions, life insurance, and CRA (20% of gross income + ₦200,000).
Step 3: Determine Taxable Income
Subtract your total reliefs from your gross income to establish your taxable income.
Step 4: Apply Nigeria's Tax Rates
Apply the progressive tax bands starting from the lowest rate and moving upward.
Step 5: Calculate Monthly PAYE
Divide your annual tax total by 12 to determine your monthly PAYE deduction.
Practical PAYE Calculation Example
Let's examine a practical example using a monthly salary of ₦350,000:
Annual Gross Income: ₦350,000 × 12 = ₦4,200,000
Pension Contribution (8%): ₦350,000 × 8% × 12 = ₦336,000
CRA Calculation: 20% of ₦4,200,000 = ₦840,000 + ₦200,000 = ₦1,040,000
Total Reliefs: ₦336,000 + ₦1,040,000 = ₦1,376,000
Taxable Income: ₦4,200,000 - ₦1,376,000 = ₦2,824,000
Tax Application:
- First ₦300,000 at 7% = ₦21,000
- Next ₦300,000 at 11% = ₦33,000
- Next ₦500,000 at 15% = ₦75,000
- Next ₦500,000 at 19% = ₦95,000
- Remaining ₦1,224,000 at 21% = ₦257,040
Total Annual PAYE: ₦21,000 + ₦33,000 + ₦75,000 + ₦95,000 + ₦257,040 = ₦481,040
Monthly PAYE: ₦481,040 ÷ 12 = ₦40,087
This demonstrates that a Nigerian worker earning ₦350,000 monthly would pay approximately ₦40,087 in PAYE tax each month.
Understanding PAYE Deduction Variations
Many Nigerians notice fluctuations in their salary deductions. Common reasons include substantial housing or transport allowances, varying pension structures, annualized payroll calculations, incorrect relief entries, or changes in employee benefits. Understanding PAYE calculation empowers you to identify and address any discrepancies.
For verification purposes, consider using online PAYE calculators or personal income tax tools available to Nigerian workers. These resources provide quick confirmation and detailed breakdowns of your tax obligations.
Mastering salary tax calculation might seem complex initially, but with this comprehensive guide, you can approach your finances with confidence and ensure your employer deducts the correct amounts each month.
