Every payroll officer in Nigeria had to relearn PAYE this year. The Nigeria Tax Act 2025, signed into law in June 2025 and effective from January 1, 2026, replaced the old Personal Income Tax Act framework with a simpler but structurally different system. If your payroll spreadsheet still references the old Consolidated Relief Allowance, it is calculating tax incorrectly.
What Changed in 2026
Two changes matter most. First, the Consolidated Relief Allowance (CRA) — the old flat relief of ₦200,000 plus 20% of gross income — has been abolished entirely. Second, it has been replaced with a much narrower Rent Relief: 20% of documented annual rent paid, capped at ₦500,000. If an employee cannot produce evidence of rent paid, they simply do not get this relief. This is a meaningfully stricter system than before.
The New Tax Bands
Annual chargeable income is now taxed progressively across six bands:
- First ₦800,000 — 0%
- ₦800,000 to ₦3,000,000 — 15%
- ₦3,000,000 to ₦12,000,000 — 18%
- ₦12,000,000 to ₦25,000,000 — 21%
- ₦25,000,000 to ₦50,000,000 — 23%
- Above ₦50,000,000 — 25%
Anyone with a chargeable income at or below ₦800,000 a year now pays no personal income tax at all — a deliberate move to align the tax-free threshold with lower-income earners.
Step-by-Step Calculation
Payroll teams should follow this order every month:
- Add up gross annual pay — basic salary, housing, transport, and any other recurring allowances, multiplied by 12.
- Deduct the employee's 8% pension contribution, calculated on Basic + Housing + Transport only, not total gross.
- Deduct documented Rent Relief, if applicable — 20% of annual rent paid, capped at ₦500,000.
- Deduct any NHF contribution where applicable.
- What remains is chargeable income. Apply the six bands above, cumulatively, to get annual tax.
- Divide annual tax by 12 to get the monthly PAYE deduction.
Worked Example
Take an employee earning ₦500,000 gross per month — ₦6,000,000 a year. Assume Basic + Housing + Transport makes up ₦3,600,000 of that, so pension (8%) is ₦288,000. Assume they can document ₦1,200,000 in annual rent, giving a Rent Relief of ₦240,000 (20% of rent, within the ₦500,000 cap).
Chargeable income = ₦6,000,000 − ₦288,000 − ₦240,000 = ₦5,472,000.
Tax is then: ₦0 on the first ₦800,000, plus 15% on the next ₦2,200,000 (₦330,000), plus 18% on the remaining ₦2,472,000 (₦444,960). Total annual tax: ₦774,960 — or ₦64,580 per month.
Common Mistakes
The mistake we see most often since January is employers still manually applying the old CRA formula out of habit, or granting Rent Relief without requiring documentation — both will produce incorrect PAYE remittances and expose the company to FIRS penalties on audit. If you manage payroll for a growing team and want this handled correctly without redoing your spreadsheet every time the rules shift, that is exactly the kind of thing our HR Assistant platform was built to support.