How to work out take-home pay in Nigeria under the 2026 PAYE bands

The direct answer: the rule and its legal source

Salary tax for employees in Nigeria now runs under the Nigeria Tax Act 2025, which took effect on 1 January 2026. The Act sets the income tax rates for individuals in section 58, and the bands themselves sit in the Fourth Schedule. The official gazette text is published on the Lagos State Internal Revenue Service website, and a copy of the Act is also held by the Nigeria Revenue Service (NRS), the body that replaced the Federal Inland Revenue Service in administering federal taxes.

Three rules decide most salary deductions for the year. The first ₦800,000 of annual taxable income is exempt. Above that, the Fourth Schedule taxes each slice at its own rate. Rent relief has replaced the old Consolidated Relief Allowance. The employee pension contribution is set by the Pension Reform Act 2014, where section 4(1) puts the employee minimum at 8 percent of monthly emoluments.

The Act applies from 1 January 2026 and does not reach back. Pay periods before that date remain under the previous law, the Personal Income Tax Act and the Finance Act 2020 amendments. A payslip for 2025 should not be re-run with the new bands.

The PAYE bands that apply from 1 January 2026

Bands are applied to chargeable income, which is gross pay less allowable deductions and reliefs. They are not applied to gross salary directly. Commentary on the Fourth Schedule consistently gives the six bands below, and the amounts in the last column are the tax due on the full width of each band. Confirm the rates against the Fourth Schedule in the gazette before you hard-code them into a payroll sheet.

The old system used a Consolidated Relief Allowance and seven rates from 7 percent to 24 percent. Payroll teams that still hold the old band table will over-tax lower earners in some months and misstate the net pay of higher earners in others, so the table above should replace it for any pay period from January 2026.

How the figure is worked out, step by step

Work through the steps in this order for each employee. Keep the annual figure until the last step, then divide by twelve to get the monthly PAYE.

1. Add up the monthly gross pay, including basic salary, housing, transport, and any other allowance or bonus that the contract counts as emolument. Multiply by twelve to get annual gross.
2. Work out the pension base. The pension is calculated on monthly emoluments, which the contract defines, but never on less than basic salary, housing and transport allowance added together. Take 8 percent of that base for the employee contribution, and multiply by twelve for the year.
3. If the employee has declared annual rent paid, calculate 20 percent of that rent. Take the lower of that figure and ₦500,000. If no rent has been declared, the relief is nil.
4. Subtract the annual pension and the rent relief from annual gross. The result is annual chargeable income.
5. Apply the bands. The first ₦800,000 is taxed at 0 percent. Each further slice is taxed at the rate for the band it falls in. Add the amounts for each band to get annual PAYE.
6. Divide the annual PAYE by twelve. Subtract the monthly pension and monthly PAYE from monthly gross. The remainder is take-home pay.

Two things sit outside this sum. The National Housing Fund contribution is not in the calculation above. The sources used for this page describe it as optional for many private-sector staff, so confirm with the Federal Mortgage Bank of Nigeria whether an employee has opted in. Voluntary pension top-ups are also outside the sum, because they are a separate choice.

One worked example with real numbers

Take an employee on ₦400,000 gross a month, or ₦4,800,000 a year. Monthly basic salary, housing and transport total ₦360,000, and a separate ₦40,000 meal allowance makes up the rest. The employee pays rent of ₦1,200,000 a year and has declared it to payroll with a tenancy agreement.

Pension base: ₦360,000 a month. The employee contribution is 8 percent, which is ₦28,800 a month or ₦345,600 a year. The meal allowance is outside the pension base.

Rent relief: 20 percent of ₦1,200,000 is ₦240,000. That is below the ₦500,000 cap, so the full ₦240,000 applies.

Chargeable income: ₦4,800,000 less ₦345,600 less ₦240,000 leaves ₦4,214,400.

Annual PAYE: the first ₦800,000 is at 0 percent, so nil. The next ₦2,200,000 is at 15 percent, which is ₦330,000. The remaining ₦1,214,400 falls in the 18 percent band, which is ₦218,592. Total annual PAYE is ₦548,592, or ₦45,716 a month.

Take-home pay: ₦400,000 less ₦28,800 pension less ₦45,716 PAYE leaves ₦325,484 a month.

The same employee without a rent declaration would have chargeable income of ₦4,454,400, annual PAYE of ₦591,792, or ₦49,316 a month. Take-home pay would fall to ₦321,884. The declaration is worth ₦3,600 a month to this employee, which is ₦43,200 a year. The example leaves out the National Housing Fund, any voluntary pension top-up, and any other deduction the employer runs through payroll, so the real figure on the payslip may differ.

The cases that change the answer

Rent relief is the most common source of error. It is not automatic. The employee must declare the actual rent paid and supply supporting information. Commentary on the Act lists a tenancy agreement, rent receipts, or an employer-approved declaration, and the landlord's details are often requested too. An employee who owns their home, lives in employer-provided housing, or pays no rent cannot claim it. The relief is also capped at ₦500,000 a year, so an employee paying ₦3,000,000 in rent gets the same relief as one paying ₦2,500,000.

Benefits in kind work differently. Under the Act, rent-free accommodation provided by an employer is valued and capped at 20 percent of gross income, and employer-provided assets are capped at 5 percent of cost. Those figures are added to taxable income, so they raise PAYE even though they are not cash.

Gratuity is taxable under the Act. Payroll teams that treated end-of-service lump sums as exempt in the past need to change that practice from 2026.

The pension rule applies to employers with three or more employees, under the Pension Reform Act 2014. An employer with fewer employees is outside the mandatory scheme, though the employee can still be given the same pay structure by contract. Employers with a larger headcount have no different percentages.

Minimum wage earners sit outside the Fourth Schedule. Section 58 of the Act states that the bands do not apply to an individual earning the minimum wage under the Minimum Wage Act, so the table in this guide should not be applied to them without checking the Act's own treatment and the current minimum wage figure.

Part-year pay for someone who joins or resigns in the middle of a year is a separate question. The sources used for this page do not set out a method for pro-rating the annual bands, so the employer should confirm the method with the state tax office or a payroll adviser before running a final payslip.

Common mistakes

The most common error is still using the Consolidated Relief Allowance. It was abolished from 1 January 2026, and a payroll that deducts a flat ₦200,000 plus 20 percent of gross will under-tax the employee.

The second error is applying the pension rate to total gross. The 8 percent applies to the pension base, which excludes meal, leave, utility, bonus and overtime allowances unless the contract counts them. Applying 8 percent to gross over-deducts and misreports the remittance.

The third error is treating rent relief as a default. A blank rent field should produce a nil relief, and the self-service form should let staff enter their rent and upload evidence.

The fourth error is applying the new bands to earlier months. The Act applies from 1 January 2026, and earlier periods remain under the previous law.

The fifth error is forgetting the remittance deadline for pension. Employers must remit the employee and employer contributions to the employee's chosen Pension Fund Administrator within a set period after payday, which the Pension Reform Act 2014 frames as seven working days.

What to check with HR or a lawyer

Check the band table against the Fourth Schedule in the official gazette before you rely on any payroll sheet. Commentary sources are useful for worked examples, but the statute is the authority.

Confirm which state tax office receives the PAYE for each employee, because it depends on the state where the employee is resident. The Nigeria Revenue Service handles some categories of taxpayer, and state internal revenue services handle resident employees in most cases. Ask the employee for a copy of the tenancy agreement or rent receipts, and keep them on file.

Check with the Pension Commission's guidance that the employee's pension fund administrator is correct and that the employer contribution is set at the minimum or higher by written agreement.

If a change to pay, allowances or the pension base is being considered, the country's notice, consultation and severance rules apply, and any change should be agreed with the employee or checked with a lawyer.

This explains the rule in general terms; it is not legal or tax advice for your case.

How employers take routine payroll work off their staff

Payroll in Nigeria is a monthly loop of the same checks: confirm the band table, apply each employee's pension and rent declaration, produce the payslip, and prepare the remittance schedules. AI workers can run that loop from the payroll sheet and the declaration forms, flag the cases that need a person, and draft the schedules for approval. The payroll owner still decides on exceptions, approves each remittance, and signs the filings.