Pay As You Earn (PAYE) is the statutory mechanism under which employers in Nigeria deduct personal income tax from employees' salaries and remit it to the relevant State Internal Revenue Service (SIRS) on a monthly basis. The legal framework is the Personal Income Tax Act (PITA) Cap P8, Laws of the Federation of Nigeria, as amended. PAYE applies to all individuals resident in Nigeria who earn employment income — whether from a private company, a federal or state government agency, or any organisation operating in Nigeria.
For individuals with multiple sources of income, only the employment income is subject to PAYE; other income streams such as rental income, business profits, or investment returns are assessed separately through annual self-assessment filing. Employers are legally obligated to deduct and remit the correct PAYE amount by the 10th of the following month, and failure to do so attracts penalties from the relevant SIRS.
Nigeria uses a progressive income tax structure. The bands are applied to your Chargeable Income — not your gross salary. This means your actual taxable base is always lower than what your employer pays you, thanks to the CRA and other statutory deductions.
| Annual Chargeable Income | Rate | Max Tax in Band |
|---|---|---|
| First ₦300,000 | 7% | ₦21,000 |
| Next ₦300,000 (up to ₦600k) | 11% | ₦33,000 |
| Next ₦500,000 (up to ₦1.1m) | 15% | ₦75,000 |
| Next ₦500,000 (up to ₦1.6m) | 19% | ₦95,000 |
| Next ₦1,600,000 (up to ₦3.2m) | 21% | ₦336,000 |
| Above ₦3,200,000 | 24% | Unlimited |
The maximum PAYE at the top of the 21% band (chargeable income of ₦3.2m) before the 24% rate kicks in is ₦560,000 per year.
Basic: ₦1,800,000 | Housing: ₦900,000 | Transport: ₦360,000 | Other: ₦540,000
Step 2 — Calculate Statutory Deductions
Pension (8% of Basic+Housing+Transport): 8% × ₦3,060,000 = ₦244,800
NHF (2.5% of Basic): 2.5% × ₦1,800,000 = ₦45,000
Step 3 — Calculate CRA
CRA = ₦200,000 + (20% × ₦3,600,000) = ₦200,000 + ₦720,000 = ₦920,000
Step 4 — Chargeable Income
₦3,600,000 − ₦920,000 − ₦244,800 − ₦45,000 = ₦2,390,200
Step 5 — Apply PAYE Bands
₦300k × 7% = ₦21,000
₦300k × 11% = ₦33,000
₦500k × 15% = ₦75,000
₦500k × 19% = ₦95,000
Remaining ₦790,200 × 21% = ₦165,942
Total Annual PAYE: ₦389,942 | Monthly: ₦32,495
The Consolidated Relief Allowance is a fundamental feature of Nigeria's PAYE system and the single biggest factor that determines how much of your salary is shielded from tax. Before the 2011 PITA amendment, employees could claim separate allowances for housing, transport, meals, utilities, and other items. The CRA replaced all of these with one simple formula: ₦200,000 per year (or 1% of gross income, whichever is higher) plus 20% of gross income.
In practice, for the vast majority of Nigerian employees, the CRA equals 20% of gross income plus ₦200,000 annually. A worker earning ₦6,000,000 per year has a CRA of ₦1,400,000 — meaning they are taxed on at most ₦4,600,000 before pension and NHF deductions are also applied. The 20% component means the CRA scales with earnings, providing proportional relief rather than a flat sum that becomes insignificant at higher income levels.
- Pension Fund Administrator (PFA) Contribution
- Under the Pension Reform Act 2014, employees in organisations with 15 or more staff must contribute a minimum of 8% of monthly emoluments (basic + housing + transport) to a registered PFA. Employers add a minimum 10% on top. The employee's contribution is tax-deductible, directly reducing your chargeable income before PAYE bands are applied. You may contribute more than 8% voluntarily, and the excess is also deductible.
- National Housing Fund (NHF)
- The NHF was established by the NHF Act Cap N45. Nigerian employees in both public and private sectors earning ₦3,000 per month or above are required to contribute 2.5% of their basic monthly salary to the Federal Mortgage Bank of Nigeria (FMBN). This contribution is fully deductible from gross income for PAYE purposes, and entitles contributors to apply for low-interest housing loans from the FMBN after a minimum contribution period. Note that the base for NHF is basic salary only, not total gross.
- NHIS Contribution
- The National Health Insurance Scheme (NHIS), now operating under the National Health Insurance Authority (NHIA) following the 2022 Act, may involve employee contributions depending on the employer's health benefit structure. Where an NHIS or HMO contribution is made by the employee, it qualifies as a deductible for PAYE purposes. The amount varies by employer scheme, so this calculator allows you to enter it as an annual figure.
Personal income tax in Nigeria is levied by states, not the federal government — this is a key distinction from many other countries. While PITA sets the national framework, each State Internal Revenue Service (SIRS) is responsible for administering and collecting PAYE within its territory. Employees working in Lagos pay to the Lagos Internal Revenue Service (LIRS); those in Abuja's FCT pay to the FCT Internal Revenue Service, and so on.
The PAYE bands and rates are set by PITA and are the same nationwide — there is no state-level variation in the tax bands themselves. However, states do differ in enforcement efficiency, ease of TIN registration, filing deadlines, and penalty structures. Some states also have local development levy charges and other minor levies that may apply in addition to PAYE. The calculations in this tool apply the standard national PITA bands and are accurate for all states.
The most effective legal strategy for reducing PAYE in Nigeria is to maximise all allowable deductions before your chargeable income is calculated. Since pension contributions above the minimum 8% are also fully deductible, increasing your voluntary pension contribution directly reduces your taxable base. Life assurance premium payments are deductible under Section 33(3) of PITA if the policy is on your own life. Where applicable, employer-sponsored NHIS deductions also reduce the chargeable income base.
Salary structuring also plays a role. The CRA calculation uses 20% of total gross income, so the CRA itself is already substantial regardless of structure. However, since pension contributions are based on emoluments (basic + housing + transport), a salary structure with a higher proportion of these components relative to other allowances will generate a larger pension deduction, further reducing chargeable income. This is worth discussing with your employer's HR or payroll team within the bounds of your contract.