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PAYE Basics

Understanding Pay-As-You-Earn tax in Nigeria

What is PAYE?

Pay-As-You-Earn (PAYE) is a tax collection system where employers deduct income tax from employees' salaries before payment. This ensures tax is collected throughout the year rather than in a lump sum at year-end.

How PAYE Works

1. Monthly Deduction: Your employer calculates and deducts tax from your monthly salary based on your gross income.

2. Tax Calculation: The tax is calculated using Nigerian PIT bands and rates, after applying allowable deductions and reliefs.

3. Remittance: Your employer remits the deducted tax to the relevant tax authority (FIRS or State IRS) on your behalf.

Tax Bands & Rates (2025/2026)

First ₦800,0000% (Tax-Free)
Next ₦2,200,000 (₦800k - ₦3M)15%
Next ₦9,000,000 (₦3M - ₦12M)18%
Next ₦13,000,000 (₦12M - ₦25M)21%
Next ₦25,000,000 (₦25M - ₦50M)23%
Above ₦50,000,00025%

Allowable Deductions

  • •Pension contributions (up to statutory limits)
  • •National Housing Fund (NHF) contributions
  • •National Health Insurance Scheme (NHIS) contributions
  • •Life assurance premiums