“
Calculating PAYE in 2026 is significantly different from previous years. The Nigeria Tax Act 2025 has introduced a higher tax-free threshold and a new 20% Rent Relief, making the calculation more favorable for employees but more complex for payroll managers.
The 2026 Progressive Tax Bands
PAYE is calculated on ‘Chargeable Income’—which is your Gross Income minus all legal reliefs. The 2026 annual bands are:
- First ₦800,000: 0% (Tax-Free)
- Next ₦2,200,000: 15%
- Next ₦9,000,000: 18%
- Next ₦13,000,000: 21%
- Above ₦50,000,000: 25%
For more on how these rates affect business owners, see The Ultimate Guide to CIT. You can also see how VAT interacts with these figures in our VAT Calculation Guide.
What Deductions Are Allowed?
Before applying the tax rates, you must subtract these tax-exempt items from the Gross Income:
- Pension: 8% of Basic, Housing, and Transport.
- NHF: 2.5% of Basic salary.
- Rent Relief: 20% of annual rent (capped at ₦500,000).
Worked Example
If an employee earns ₦5 million annually and pays ₦1 million in rent:
Chargeable Income = ₦5m – (Pension + NHF + ₦200k Rent Relief) = ~₦4.3m.
Tax = (First ₦800k @ 0%) + (Next ₦2.2m @ 15%) + (Remaining ₦1.3m @ 18%).
To avoid manual errors, use the TaxCalc.ng automated tool or consult the PwC Nigeria Tax Calculator. For official definitions of ‘Gross Income’, visit the LIRS FAQ page.
“