PAYE Tax Calculator Nigeria 2026: How to Calculate Employee Tax Deductions

Have you ever checked an employee’s payslip and questioned the tax amount? Well, you are not alone. Searches for PAYE calculator Nigeria 2026 have increased since the Nigeria Tax Act 2025 began in January.

This guide shows you how to calculate PAYE in Nigeria using the 2026 rules. It includes step-by-step instructions with salary examples and a quick reference table you can use immediately.

What Is PAYE Tax in Nigeria?

PAYE stands for Pay As You Earn. It is a system where employers deduct income tax from employee salaries before payment and send it to the State Internal Revenue Service. All employers with salaried staff in Nigeria must calculate the correct amount, deduct it monthly, and remit it by the 10th of the following month.

Employees do not handle this tax. It is deducted before their salary is paid.

What Changed in 2026

A quick recap: The Nigeria Tax Act 2025 made two major changes to how employee tax is calculated in Nigeria.

1. The Consolidated Relief Allowance has been removed. Previously, employees received relief of ₦200,000 or 1% of gross income (whichever was higher), plus 20% of gross income before tax. This is no longer allowed under the new rules.
2. The tax bands have also changed. The old rates of 7%, 11%, 15%, 19%, 21%, and 24% are no longer in use.

The 2026 PAYE bands are:

Annual Taxable Income	Rate
First ₦800,000	0%
Next ₦2,200,000	15%
Next ₦9,000,000	18%
Next ₦11,000,000	21%
Next ₦20,000,000	23%
Above ₦50,000,000	25%

PAYE Calculator Nigeria 2026: Step-by-Step

Step 1: Calculate gross income

Add up everything the employee earns, such as basic salary and all allowances. This includes housing, transport, utilities, meals, and other regular payments. This total is your starting point.

Step 2: Deduct pension contributions.

The employee’s pension contribution is 8% of their qualifying salary, which is the sum of basic salary, housing allowance, and transport allowance. Subtract this amount from the gross income.

This deduction reduces the taxable amount. It is the only pre-tax deduction allowed under the 2026 rules, since the CRA was removed.

Step 3: Determine taxable income.

Subtract the pension contribution from the gross income to get the taxable income. This is the amount you use to apply the tax bands.

Step 4: Apply the tax bands progressively.

Do not use one rate for entire amount. Apply each tax band in order, with each rate applying only to the income within that band.

Add the tax from all bands to get the total annual PAYE amount, then divide by 12 to find the monthly deduction.

Example PAYE Calculation; ₦500,000 Monthly Salary

An employee earns ₦500,000 per month, with the following breakdown:

1. Basic salary: ₦250,000
2. Housing allowance: ₦150,000
3. Transport allowance: ₦50,000
4. Utility allowance: ₦50,000

Step 1: Gross annual income ₦500,000 × 12 = ₦6,000,000

Step 2: Pension contribution is 8% of (basic + housing + transport) = 8% of ₦450,000 monthly = ₦36,000 per month. Annual pension = ₦36,000 × 12 = ₦432,000.

Step 3: Taxable income ₦6,000,000 − ₦432,000 = ₦5,568,000

Step 4: Apply tax bands

Band	Amount	Rate	Tax
First ₦800,000	₦800,000	0%	₦0
Next ₦2,200,000	₦2,200,000	15%	₦330,000
Remaining ₦2,568,000	₦2,568,000	18%	₦462,240

Step 5: Total annual PAYE ₦0 + ₦330,000 + ₦462,240 = ₦792,240

Monthly PAYE deduction: ₦792,240 ÷ 12 = ₦66,020

So for this employee, ₦66,020 is deducted before the salary is paid each month. Their net monthly pay is ₦500,000 − ₦36,000 (pension) − ₦66,020 (PAYE) = ₦397,980.

This is the amount the employee actually receives. The ₦102,020 difference between gross and net pay is what most employees notice.

You can automate this whole calculation with Eazipay’s PAYE tools. The current bands are applied automatically, and remittance receipts are generated.

Quick PAYE Reference Table

Below are estimated monthly PAYE deductions for common salary levels, based on the 2026 tax bands. Pension is deducted at 8% of basic, housing, and transport allowances, which are assumed to make up 70% of gross salary for these estimates.

Monthly Gross Salary	Est. Monthly Pension	Est. Taxable Income (Annual)	Est. Monthly PAYE
₦150,000	₦8,400	₦1,699,200	₦0
₦300,000	₦16,800	₦3,398,400	₦21,735
₦500,000	₦28,000	₦5,664,000	₦65,760
₦800,000	₦44,800	₦9,062,400	₦157,572
₦1,500,000	₦84,000	₦16,992,000	₦390,456

Note: These are only estimates. The actual amounts depend on each employee’s pay structure. For exact figures, use Eazipay’s PAYE calculator for each employee.

Common PAYE Calculation Mistakes in 2026

1. Still using the CRA? The Consolidated Relief Allowance no longer exists under the 2026 rules. If your calculation still starts with ₦200,000 + 20% of gross, it is incorrect.
2. Using the old tax bands? The progression of 7%, 11%, 15%, 19%, 21%, and 24% was replaced in January 2026.
3. Applying a flat rate to the whole salary? PAYE is progressive, so each band applies only to the income within that band. For example, using 15% on a ₦5,568,000 taxable income gives ₦835,200, which is ₦42,960 more than the correct amount. This means your employee overpays every year.
4. Not deducting pension before calculating taxable income? Pension must be subtracted first. Skipping this step taxes income that should not be taxed.
5. Calculating PAYE monthly instead of annualising? This can cause rounding errors that add up over the year. Always calculate the annual amount first, then divide by 12 for the monthly deduction.

Employee vs Employers Responsibilities for PAYE in Nigeria

For employers: You calculate the tax, deduct it, and send it to the State Internal Revenue Service by the 10th of the following month. If the calculation is wrong or the payment is late, you are responsible, not your employee. The NRS and state revenue services enforce this. Late payments carry a 10% penalty, and not deducting at all carries a 40% penalty.

For employees: You do not pay anything directly but have the right to know what is deducted from your salary and why. If your employer’s PAYE calculation differs from this guide, ask for a breakdown. Payslips or employment contracts should contain the salary breakdown per year.

Why Manual PAYE Calculation Is a Liability

Every step in this guide must be accurate. One mistake, such as using the wrong pension base, applying a tax band to the full income instead of the correct part, or missing a month when annualising, will cause errors that add up each month.

If a business has 30 employees, a mistake in the PAYE formula affects 30 payslips, 30 remittances, and the trust of 30 employees. Fixing these errors later takes much more time than getting it right from the start.

 

How Eazipay Handles PAYE Calculation

Eazipay automatically applies the correct 2026 PAYE bands to every employee. Pension is deducted first, each band is calculated on the correct portion of income, and the monthly figure is derived from the annual calculation.

Remittance receipts are generated every cycle, and records are stored automatically. If the NRS or your State IRS requests documentation, it is already available.

Contact us to see how this works for your team size and salary structure. You can also visit the Eazipay blog for more practical guides on payroll and tax in Nigeria.

Frequently Asked Questions

How is PAYE calculated in Nigeria?

First, determine gross income. Then, deduct pension contributions (8% of basic, housing, and transport allowance) to get taxable income. Next, apply the 2026 tax bands progressively. Each band only applies to the income within it. Finally, divide the annual figure by 12 for the monthly deduction.

What percentage is PAYE tax in Nigeria?

PAYE is not a flat rate. It is progressive. The first ₦800,000 of annual taxable income is taxed at 0%. The next ₦2,200,000 is taxed at 15%. Higher income bands are taxed at 18%, 21%, 23%, and 25%. The effective rate depends on your total taxable income.

Can You Use an Online PAYE Calculator?

Yes, online PAYE calculators simplify tax estimation by automating calculations based on salary, deductions, and tax rules. They reduce errors and help businesses and employees understand tax obligations quickly.

Is PAYE mandatory for all employees?

Yes. Every employee earning income in Nigeria must pay PAYE. The employer must calculate the correct deduction, withhold it from the salary before payment, and send it to the relevant State Internal Revenue Service by the 10th of the following month.

What deductions apply before PAYE?

Under the 2026 rules, only pension contributions are deducted before PAYE is calculated. The employee’s contribution is 8% of basic salary plus housing and transport allowance. The old Consolidated Relief Allowance no longer applies, and there are no other pre-tax reliefs under the Nigeria Tax Act 2025.

Can I calculate PAYE manually?

Yes, but the risk of mistakes is high. The progressive tax bands, pension deduction base, annualisation, and 2026 rule changes all make manual calculations tricky. One error affects every payslip. Automated payroll systems apply the correct formula for every employee, every time.

What is CRA in Nigerian tax? CRA; Consolidated Relief Allowance; was a pre-tax relief that reduced taxable income before PAYE was applied. Under the old rules, employees received ₦200,000 or 1% of gross income, whichever was higher, plus 20% of gross income as relief. The Nigeria Tax Act 2025 abolished the CRA effective January 2026. It no longer applies to PAYE calculations.