What Is PAYE?
PAYE means “Pay As You Earn.”
It is a system where income tax is deducted directly from your salary before you receive your pay.
Employers calculate, deduct, and remit the tax monthly on behalf of employees under the Personal Income Tax Act (PITA), as amended.
Highlights of the 2026 Tax Reform
- Income Exemption Threshold Increased: Individuals earning ₦800,000 or less annually are now exempt from income tax. Higher earners are taxed progressively up to 25%, depending on their income bracket.
- Compensation Exemption Increased: Tax-free compensation for loss of employment or injury has increased from ₦10 million to ₦50 million.
- Targeted Reliefs Replace CRA: The Consolidated Relief Allowance (CRA)which previously allowed taxpayers to deduct about 21% of gross income—has been replaced with a Rent Relief Allowance capped at ₦500,000 or 20% of annual rent paid, whichever is lower.
- Fully Deductible Contributions
- Pension contributions (minimum 8%)
- National Housing Fund (2.5%)
- National Health Insurance Scheme (5%)
- Interest on owner-occupied Property loans
How to Calculate Your Take-Home Salary
Step 1: Determine Annual Emolument
Total salary and allowances earned annually.
Step 2: Deduct Statutory Contributions & Reliefs
- Pension (8% minimum)
- NHF (2.5%)
- NHIS (5%)
- Interest on owner-occupied property loan
- Rent relief (lower of 20% of rent or ₦500,000)
Step 3: Arrive at Taxable Income
Gross income minus allowable deductions.
Step 4: Apply Graduated Tax Rates
Nigeria operates a progressive tax system where higher income portions are taxed at higher rates.
Step 5: Monthly PAYE Deduction
The calculated tax is deducted monthly and reflected on the employee’s payslip.
Common PAYE Mistakes
- Using outdated tax rates
- Ignoring allowable reliefs
- Late remittance
- Incorrect employee details
- Errors in annual returns
PAYE Remittance Deadline
PAYE must be remitted on or before the 10th day of the month following salary payment. Late remittance attracts penalties, interest, and possible enforcement actions.
Frequently Asked Questions
When is PAYE due?
On or before the 10th day of the following month after salary payment.
Who must pay PAYE?
- Full-time employees
- Part-time employees
- Company directors receiving salaries
What is the deadline for Annual Returns?
The Annual Return of Emoluments must be filed by January 31 each year.
Do self-employed persons pay PAYE?
No. Self-employed individuals pay Personal Income Tax under Direct Assessment, not PAYE.
