Nigeria PAYE 2026: Are You Compliant, or Do You Just Think You Are?
Published: March 2026 | Category: Tax & Compliance | Reading time: ~10 minutes
It is March 2026. The new PAYE law has been live for three months now. And two types of employers are reading this article right now.
The first is the employer who has not updated their payroll at all. Maybe you heard about the new tax bands but kept pushing it to next month. Maybe your accountant mentioned it and you assumed they handled it. Either way, your business has been running three months of payroll under an old, repealed law.
The second is the employer who updated their payroll in January but is quietly not sure whether they did it right. You removed the Consolidated Relief Allowance. You changed some numbers. But with six allowable deductions, new tax bands, new rates, and a new base for pension contributions, there is a lot of room for a quiet, costly error.
This guide is written for both of you. It covers everything you need to know about Nigeria PAYE 2026 compliance, what the Nigeria Tax Act (NTA) 2025 actually changed, how to calculate PAYE correctly from scratch, the most common mistakes employers are making right now, and what to do today to get your payroll right before the Nigeria Revenue Service (NRS) comes looking.
| 📌 Quick facts for March 2026: The new PAYE law has been enforceable since January 1, 2026. The NRS now cross-references payroll data with bank records and tax filings. Penalties for under-deduction include the full shortfall, a 10% penalty, and interest at the CBN monetary policy rate. Directors can be held personally liable. |
Part One: If You Have Not Updated Your Payroll Yet
What Exactly Changed on January 1, 2026?
PAYE (Pay-As-You-Earn) is Nigeria’s system for collecting personal income tax directly from employee salaries at source. The system itself is not new. What changed completely on January 1, 2026, under the Nigeria Tax Act (NTA) 2025, is how that tax is calculated. As an employer, you are required to:
- Calculate the correct PAYE tax for each employee every month
- Deduct that amount from their gross salary before payment
- Remit the deducted tax to the relevant State Internal Revenue Service (SIRS) by the 10th of the following month
- File monthly PAYE returns and annual employer returns
Failure to deduct correctly or remit on time attracts significant penalties under the Nigeria Tax Administration Act (NTAA) 2025, including fines, interest charges, and personal liability for company directors.
None of this changed on January 1, 2026. What changed is the calculation itself. The NTA 2025 signed by President Bola Tinubu, replaced the Personal Income Tax Act (PITA) entirely. If your payroll software or accountant is still referencing PITA, your deductions are wrong.
The New 2026 PAYE Tax Bands at a Glance
If you are still using any of the following — the Consolidated Relief Allowance, the old 7.5% pension rate, or tax bands that start at ₦300,000 — your payroll is non-compliant. Here is every change, side by side.
First, the new 2026 tax bands:
| # | Annual Income Band (₦) | Monthly Band (₦) | Tax Rate |
|---|---|---|---|
| 1 | First ₦800,000 | First ₦66,667 | 0% (Tax-Free) |
| 2 | Next ₦2,200,000 (₦800,001–₦3,000,000) | Next ₦183,333 | 15% |
| 3 | Next ₦9,000,000 (₦3,000,001–₦12,000,000) | Next ₦750,000 | 18% |
| 4 | Next ₦13,000,000 (₦12,000,001–₦25,000,000) | Next ₦1,083,333 | 21% |
| 5 | Next ₦25,000,000 (₦25,000,001–₦50,000,000) | Next ₦2,083,333 | 23% |
| 6 | Above ₦50,000,000 | Above ₦4,166,667 | 25% |
| ⚠️ Key change from old law: The previous system had 6 bands starting at ₦300,000 with rates from 7% to 24%. Under the new law, the tax-free threshold has more than doubled to ₦800,000 annually. Low- and middle-income earners see meaningful tax relief. Higher earners pay more. |
What Exactly Changed: Old Law vs New Law Side by Side
| Item | Old Law (Pre-2026) | New Law (2026 NTA) |
|---|---|---|
| Tax-free threshold | ₦300,000 or Minimum Wage | ₦800,000 annual (₦66,667/month) |
| Consolidated Relief Allowance (CRA) | ₦200,000 + 1% gross income, min 20% of gross | REMOVED |
| Rent Relief | Not applicable | 20% of annual rent paid, up to ₦500,000 |
| Pension deduction | 7.5% employee contribution | 8% employee contribution |
| NHF deduction | 2.5% of basic salary | 2.5% of gross salary (optional, private sector) |
| Top tax rate | 24% on income above ₦3.2M | 25% on income above ₦50M |
| Gratuity | Tax-exempt | Now taxable |
| Digital/virtual asset income | Not addressed | Now taxable |
| Employment compensation | Tax-exempt up to ₦10M | Tax-exempt up to ₦50M |
| Remittance deadline | 10th of following month | 10th of following month (unchanged) |
Allowable Deductions Under the New PAYE Law
Before applying the tax bands above, you must calculate each employee’s Chargeable Income by subtracting eligible deductions from their gross salary. Under the NTA 2025, there are six allowable deductions:
| # | Deduction | Rate / Cap | Notes |
|---|---|---|---|
| 1 | Pension contribution (employee) | 8% of basic + housing + transport allowance | Mandatory. Employer contributes 10%. |
| 2 | National Housing Fund (NHF) | 2.5% of gross salary | Optional for private sector employees. Required documentation. |
| 3 | NHIS/HMOS (health insurance) | 5% of basic salary (employee portion) | Applicable for employers with 10+ staff. |
| 4 | Rent relief | 20% of annual rent paid, max ₦500,000 | New under NTA 2025. Documentation required. |
| 5 | Mortgage interest | Actual interest on self-occupying home | Must be documented. |
| 6 | Life insurance premium | Actual amount paid for self or spouse | Previous year’s premium. Documentation required. |
| ✅ Important: The old Consolidated Relief Allowance (CRA), worth ₦200,000 plus 1% of gross income, has been completely removed. Do not apply it to any payroll run from January 2026. Use only the six deductions listed above. |
Part Two: Verifying Your Nigeria PAYE 2026 Calculation Is Correct
Run the Full Calculation Yourself — Step by Step
Even if your accountant or payroll software handled the update in January, running this calculation manually for at least one employee is the fastest way to confirm your system is correct. Use this as your audit check.
| 📌 Example Employee: Emeka works at a Lagos SME. |
| Gross Monthly Salary: ₦500,000 |
| Basic Salary: ₦250,000 (50% of gross) |
| Housing Allowance: ₦125,000 (25% of gross) |
| Transport Allowance: ₦75,000 (15% of gross) |
| Other Allowances: ₦50,000 (10% of gross) |
| Monthly Rent Paid: ₦120,000 |
| Annual Gross Salary: ₦6,000,000 |
Step 1: Calculate Pension Contribution
Pension is calculated on Basic + Housing + Transport allowance (not total gross).
Pensionable pay = ₦250,000 + ₦125,000 + ₦75,000 = ₦450,000/month
Employee pension (8%) = ₦450,000 × 8% = ₦36,000/month
Annual pension = ₦36,000 × 12 = ₦432,000
Step 2: Calculate NHF Contribution (if applicable)
NHF is 2.5% of gross salary. This is optional for private sector employees but commonly applied.
Annual NHF = ₦6,000,000 × 2.5% = ₦150,000
Step 3: Calculate Rent Relief
Rent relief = 20% of annual rent paid, capped at ₦500,000.
Annual rent = ₦120,000 × 12 = ₦1,440,000
Rent relief = 20% × ₦1,440,000 = ₦288,000 (below ₦500,000 cap, so ₦288,000 applies)
Step 4: Calculate Total Allowable Deductions
Total deductions = Pension + NHF + Rent Relief
= ₦432,000 + ₦150,000 + ₦288,000 = ₦870,000
Step 5: Calculate Chargeable Income (Taxable Income)
Chargeable Income = Annual Gross − Total Deductions
= ₦6,000,000 − ₦870,000 = ₦5,130,000
Step 6: Apply the 2026 PAYE Tax Bands
Now apply the progressive tax bands to ₦5,130,000 chargeable income:
| Band | Income Applied (₦) | Rate | Tax (₦) |
|---|---|---|---|
| Band 1 (₦0 – ₦800,000) | ₦800,000 | 0% | ₦0 |
| Band 2 (₦800,001 – ₦3,000,000) | ₦2,200,000 | 15% | ₦330,000 |
| Band 3 (₦3,000,001 – ₦5,130,000) | ₦2,130,000 | 18% | ₦383,400 |
| TOTAL ANNUAL PAYE TAX | ₦5,130,000 | — | ₦713,400 |
| Monthly PAYE (÷ 12) | — | — | ₦59,450 |
Emeka’s monthly PAYE deduction = ₦59,450
Emeka’s monthly net pay = ₦500,000 − ₦36,000 (pension) − ₦12,500 (NHF) − ₦59,450 (PAYE) = ₦392,050
| ✅ Note: PAYE is always calculated on an annual basis first, then divided by 12 for monthly deductions. Never calculate PAYE directly on monthly salary without annualising first. This is a common and costly mistake. |
The 6 Most Common PAYE Mistakes Nigerian Employers Are Making Right Now
Based on the new law, these are the errors that are showing up most frequently in payroll runs since January 2026. Check each one against your own setup.
| # | The Mistake | Why It Happens | The Fix |
|---|---|---|---|
| 1 | Still applying the Consolidated Relief Allowance (CRA) | Accountants or software not updated from the old PITA | Remove CRA entirely. Use only the 6 new allowable deductions. |
| 2 | Using 7.5% for employee pension instead of 8% | Old pension rate hardcoded into payroll software or spreadsheet | Update pension to 8% of Basic + Housing + Transport allowance. |
| 3 | Calculating pension on gross salary instead of pensionable pay | Confusion between pensionable pay and total gross income | Pension base is Basic + Housing + Transport only, not total gross. |
| 4 | Ignoring rent relief as an eligible deduction | New deduction introduced in NTA 2025 — not widely known | Deduct 20% of annual rent paid per employee, capped at ₦500,000. |
| 5 | Calculating PAYE on monthly salary without annualising first | Shortcut in manual payroll — applying bands to monthly figures | Always annualise salary first, apply bands, then divide result by 12. |
| 6 | Not updating the tax-free threshold from ₦300,000 to ₦800,000 | Old band hardcoded in payroll spreadsheets or legacy software | The first ₦800,000 of annual income is zero-rated under the new law. |
| ⚠️ If your March 2026 payroll has any of the above errors, you have three months of incorrect deductions to reconcile. The NRS can audit up to 6 years of payroll records. The sooner you correct and document the adjustment, the lower your exposure. |
Statutory Contributions: Pension, NHF, and NHIS
Beyond PAYE, Nigerian employers must manage three key statutory contributions. Here is a quick reference:
| Contribution | Employee Rate | Employer Rate | Calculated On | Remittance Deadline |
|---|---|---|---|---|
| Pension (RSA) | 8% | 10% | Basic + Housing + Transport | 7 days after salary payment |
| NHF | 2.5% | N/A | Gross salary (private sector, opt.) | 1st day of following month |
| NHIS | 5% | 10% | Basic salary (10+ employees) | Monthly |
Penalties for Payroll Non-Compliance Under the NTA 2025
The NTA 2025 introduced significantly stiffer enforcement compared to the old PITA. Here is what employers risk:
| Violation | Penalty |
|---|---|
| Failure to deduct PAYE at all | Full tax liability + 10% penalty + interest at CBN MPR |
| Under-deduction of PAYE | Amount of under-deduction + penalties + interest |
| Late remittance (after 10th of month) | 5% per annum on outstanding amount + interest |
| Failure to file monthly PAYE returns | ₦500,000 or 1% of annual gross payroll, whichever is higher |
| Failure to register employees for PAYE | ₦200,000 per unregistered employee |
| Directors’ personal liability | Directors can be held personally liable for unremitted PAYE |
| ⚠️ Director liability is new: Under the NTAA 2025, company directors can now be held personally liable for PAYE that was deducted from employees but not remitted to the revenue authority. This is a significant escalation from previous law. |
Who Is Exempt from PAYE in Nigeria 2026?
Not all employees are subject to PAYE deductions. The following categories are exempt:
- Employees earning at or below the national minimum wage (currently ₦70,000/month) are fully exempt
- Military officers, whose salaries remain tax-exempt under the NTA 2025
- Employees whose total annual income after deductions falls below ₦800,000
- Employment compensation payments up to ₦50,000,000 (for redundancy, injury, or job loss) are tax-exempt
| 📌 Minimum tax rule: Where an employee’s chargeable income after all deductions is zero or negative, a minimum tax of 1% of total gross income is still payable, except for minimum wage earners and military personnel. |
Your March 2026 PAYE Compliance Checklist
Whether you are starting fresh or auditing an existing setup, go through each item below. Any unchecked box is a potential liability.
| # | Action Item | Status |
|---|---|---|
| 1 | Remove the old Consolidated Relief Allowance (CRA) from payroll calculations | ☐ Done |
| 2 | Update pension contribution rate from 7.5% to 8% (employee portion) | ☐ Done |
| 3 | Apply new tax-free threshold of ₦800,000 annually (₦66,667/month) | ☐ Done |
| 4 | Add rent relief deduction for eligible employees (20% of rent, max ₦500,000) | ☐ Done |
| 5 | Update NHF calculation base from basic salary to gross salary | ☐ Done |
| 6 | Ensure gratuity payments are now included in taxable income | ☐ Done |
| 7 | Register all employees with your State Internal Revenue Service | ☐ Done |
| 8 | Update payroll software to the new 2026 tax bands | ☐ Done |
| 9 | Confirm PAYE remittance is scheduled before the 10th of each month | ☐ Done |
| 10 | File monthly PAYE returns and keep employee tax records for 6 years | ☐ Done |
Frequently Asked Questions
Can I still use the old PAYE tables I have been using?
No. The old tables were based on the Personal Income Tax Act (PITA), which has been repealed and replaced by the NTA 2025. Using old tables means you are under-deducting tax, which makes your business liable for the shortfall plus penalties.
Does the new law apply to contract staff and freelancers?
Independent contractors and freelancers are generally not subject to PAYE. They pay their own income tax directly. However, if a contractor works exclusively or primarily for your business, the revenue authority may reclassify them as an employee. A 5% Withholding Tax (WHT) should be deducted on payments to registered consultants.
What is the PAYE remittance deadline?
PAYE must be remitted to the relevant State Internal Revenue Service by the 10th day of the month following the month of deduction. For example, PAYE deducted in March 2026 must be remitted by April 10, 2026.
Does PAYE apply to bonuses and commissions?
Yes. Under the NTA 2025, all forms of remuneration are included in the PAYE base, including bonuses, commissions, gratuity (now taxable), allowances, and benefits in kind. Employer-provided assets are valued at 5% of cost per year.
My employee works in Lagos but is a non-resident. Do I deduct PAYE?
Non-residents are taxed only on Nigeria-sourced income under the NTA 2025. If they earn income from working in Nigeria, even remotely for a Nigerian employer, that income is subject to Nigerian personal income tax. The NTA has extended significant economic presence (SEP) rules to this category.
Get Your Payroll Right From Here. LeafTally Makes It Automatic.
Whether you are starting fresh or correcting three months of errors, the fastest path to clean payroll is software that already knows the rules. LeafTally is built specifically for Nigeria’s tax environment and updated for the NTA 2025 from day one. See our full breakdown of the 2025 Nigeria Tax Act for small businesses for context on the broader reforms affecting your business.
With LeafTally’s payroll module, you can:
- Automatically apply the 2026 PAYE tax bands to every employee’s chargeable income
- Calculate pension (8%), NHF (2.5%), and NHIS contributions accurately on the correct base
- Apply rent relief and other eligible deductions per employee with full audit trail
- Generate professional payslips for every employee in seconds
- Stay on top of remittance deadlines with built-in alerts and compliance tracking
- Run payroll across multiple employees and multiple branches from one dashboard
| ✅ LeafTally is currently accepting businesses into its early access launch program. |
| Join now and get your payroll 100% NTA-2026 compliant from your very first run. |
| 👉 [Join the LeafTally Launch Program → leaftally.com] |
| 👉 [See LeafTally Payroll Features →] |
Conclusion
It is March 2026. Three months of payroll have already been processed under the new law. If yours were wrong, the liability is real and growing. If you are not sure, the checklist and calculation in this guide give you everything you need to find out.
The good news is that getting Nigeria PAYE 2026 right is not complicated once you know what to check. Run the numbers, check your deductions against the six allowable items, confirm you are using the right tax bands, and correct any shortfall with documentation. Done proactively, this is a straightforward process. Done reactively after an NRS audit, it is significantly more painful.
If your business is still processing payroll on spreadsheets or old software, this is the moment to upgrade. The cost of getting it wrong is far higher than the cost of getting it right.
Also read: NRS e-Invoicing Nigeria 2026: The Complete Compliance Guide for Nigerian Businesses — the other major compliance change every Nigerian employer needs to act on right now.
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