Payroll in Nigeria changed fundamentally on 1 January 2026. The Nigeria Tax Act 2025 took effect that day, repealing the Personal Income Tax Act, abolishing the Consolidated Relief Allowance and replacing the old bands with a new schedule. An employer who carried a 2025 payroll configuration into the new year is now computing tax under a repealed law. This guide explains the new PAYE bands, how rent relief works, what employers pay on top of salary and where each payment goes, with a worked example at ₦400,000 a month.
These changes form part of the wider requirements businesses need to consider when managing payroll in Nigeria.
The New PAYE bands Under the Nigeria Tax Act
PAYE is charged on chargeable income, which is gross pay less allowable deductions. The first ₦800,000 a year is taxed at nil, the next ₦2.2 million at 15%, the next ₦9 million at 18%, the next ₦13 million at 21%, the next ₦25 million at 23%, and anything above ₦50 million at 25%. Employees whose gross income from employment is at or below the applicable national minimum wage are not liable to income tax on that employment income.
Rent Relief replaces the Consolidated Relief Allowance
The old allowance gave every employee a deduction of 20% of gross income plus the higher of ₦200,000 or 1% of gross. Its replacement is narrower: 20% of annual rent paid, capped at ₦500,000, available only when the employee declares the rent accurately. Two colleagues on the same salary can now have different tax bills, so employers need a documented process for collecting rent declarations. Every deduction must be claimed in writing, and the tax authority can refuse any it cannot see evidenced. SeamlessHR payroll supports that process with a dedicated tax reform mode, a rent relief allowance field and an option to require employees to upload rent certificates.
What Employers Pay on Top of Salary
Pension is one of the largest statutory employment costs. Employees contribute a minimum of 8%, while employers contribute at least 10%, based on monthly emoluments comprising basic salary, housing allowance and transport allowance. Employers also have other statutory obligations, including NSITF and, where applicable, ITF contributions. Pension Commission
- NSITF: 1% of total monthly payroll, paid by the employer.
- ITF: 1% of annual payroll for employers with five or more employees, or employers with fewer than five employees and annual turnover of at least ₦50 million. The ITF contribution is payable by 31 March each year.
- Group life insurance: cover of at least three times each employee’s annual emoluments, with the premium paid before cover starts.
- NHF: Private sector employees may contribute 2.5% of monthly income voluntarily. Employers should deduct and remit the contribution for employees who choose to participate.
Worked Example
Assume a ₦400,000 monthly package split 60% basic, 20% housing, 10% transport and 10% other allowances, annual rent of ₦1,200,000 and no other deductions. For this example, assume the employee’s pensionable monthly emoluments are defined as basic salary, housing and transport allowances, giving a pensionable base of ₦360,000.
| Item | Annual (₦) | Monthly (₦) |
|---|---|---|
| Gross pay | 4,800,000 | 400,000 |
| Employee pension (8% of the pensionable base) | 345,600 | 28,800 |
| Rent relief (20% of rent, reduces taxable income only) | 240,000 | 20,000 |
| Chargeable income | 4,214,400 | 351,200 |
| PAYE | 548,592 | 45,716 |
| Net pay | 3,905,808 | 325,484 |
PAYE is ₦330,000 on the next ₦2.2 million at 15%, plus ₦218,592 on the remaining ₦1,214,400 at 18%. On the employer’s side, the salary attracts a pension contribution of ₦36,000 and an NSITF contribution of ₦4,000. Where the employer is liable for ITF, it should also accrue ₦4,000 a month against the 1% annual payroll levy. That gives ₦44,000 in these statutory costs before group life insurance.
Where and When to Pay
PAYE is a state tax, remitted to the revenue service of the employee’s relevant territory of residence by the 10th of the following month, with an annual employer return due by 31 January. A team spread across Lagos, Abuja and Port Harcourt therefore files with three authorities. Pension must reach the pension fund custodian within seven working days of payday, for onward credit to each employee’s pension fund administrator (PFA).
Penalties are heavy: The Nigeria Tax Administration Act 2025 provides a 40% administrative penalty where a person fails to deduct tax that they were required to deduct. Where tax has been deducted but not remitted on time, a 10% per annum administrative penalty and interest at the prevailing CBN monetary policy rate may apply.
Four Payroll Mistakes to Avoid in Nigeria
- Still applying the repealed bands or the Consolidated Relief Allowance.
- Granting rent relief without a written declaration on file.
- Deducting NHF from employees who have not agreed to it.
- Remitting all PAYE to one state when employees live in several.
Keeping Payroll in Nigeria Compliant After the Reforms
The reforms arrived mid-cycle for most employers, which is why payroll software in Nigeria now has to do more than calculate. It must hold rent declarations, apply the right bands from the right month and leave a clean audit trail.
Frequently Asked Questions
What are the PAYE rates in Nigeria in 2026? Six bands from nil to 25%, with the first ₦800,000 of taxable income taxed at nil.
Does the Consolidated Relief Allowance still exist? No. It was abolished and replaced by a rent relief of 20% of annual rent, capped at ₦500,000.
Who receives PAYE in Nigeria? PAYE for resident employees is administered by the relevant State Internal Revenue Service or FCT tax authority, based on the employee’s territory of residence, subject to statutory exceptions.
Is NHF compulsory for private-sector employees? No. It has been voluntary since February 2023, so deduct it only with the employee’s agreement.
Which payroll software is compliant with Nigeria’s 2026 tax laws? SeamlessHR is a compliant payroll software option for businesses operating in Nigeria. Its payroll platform supports the Nigeria Tax Act 2025, including the new PAYE bands and Rent Relief Allowance. Businesses must enable the 2025 Tax Reform setting and ensure employee tax information is correctly configured before running payroll.
Is SeamlessHR the best payroll software in Nigeria? SeamlessHR is widely considered the best payroll and HR platform in Nigeria, particularly for businesses that need payroll, employee data, compliance and wider workforce management in one system. It supports the 2026 Nigerian tax reforms and combines payroll with HR and workforce processes, making it a strong choice for organisations that need more than basic salary processing.
