Understanding how to calculate tax on salary in Nigeria is important for employees who want to know how much of their income goes toward personal income tax and how PAYE deductions affect their take-home pay.
Nigeria’s individual income tax rules have changed under the tax reform legislation that took effect from 1 January 2026. As a result, employees should be careful when using older tax calculators or salary examples based on previous tax rates.
This guide explains the basic calculation process, current individual tax bands, examples, PAYE and some common mistakes to avoid.
How Is Salary Taxed in Nigeria?
Employees in Nigeria generally pay personal income tax on taxable income through the Pay As You Earn (PAYE) system.
Under PAYE, an employer calculates the employee’s applicable tax, deducts it from salary and remits the amount to the relevant tax authority.
However, your annual salary is not necessarily taxed at one single percentage. Nigeria uses a progressive tax structure, meaning different portions of taxable income can be taxed at different rates.
For 2026, the Nigeria Tax Act 2025 provides the following individual tax bands:
|
Annual taxable income |
Tax rate |
|
First ₦800,000 |
0% |
|
Next ₦2,200,000 |
15% |
|
Next ₦9,000,000 |
18% |
|
Next ₦13,000,000 |
21% |
|
Next ₦25,000,000 |
23% |
|
Above ₦50,000,000 |
25% |
The important point is that you do not pay the highest applicable rate on your entire salary. Each portion of taxable income is assessed according to the relevant band.
How to Calculate Tax on Salary in Nigeria
A simplified calculation can be approached in the following steps:
Step 1: Determine your annual gross income.
Step 2: Identify applicable deductions, exemptions and reliefs.
Step 3: Calculate your taxable income.
Step 4: Apply the progressive tax bands.
Step 5: Add the tax from each applicable band.
Step 6: Divide the annual tax by 12 if you want an approximate monthly PAYE amount.
The actual PAYE calculation can be more detailed depending on the employee’s circumstances and the treatment of particular income and benefits.
Step 1: Calculate Your Annual Gross Salary
Start by determining your total annual employment income.
For example, if your monthly salary is:
₦500,000
Your annual salary would be:
₦500,000 × 12 = ₦6,000,000
Your annual gross salary is therefore ₦6 million.
However, you should not automatically assume that the entire ₦6 million is the amount to which the tax rates are applied. The next step is to determine taxable income under the applicable rules.
Step 2: Determine Applicable Deductions and Reliefs
The calculation of personal income tax does not simply involve multiplying gross salary by a tax rate.
You need to consider which deductions, exemptions, contributions or other adjustments are applicable under the current tax legislation.
Depending on your circumstances, this can include qualifying pension contributions and other amounts recognised under the applicable tax rules.
This is one reason why simply searching for a percentage and multiplying it by your salary can produce an inaccurate result.
Step 3: Calculate Your Taxable Income
Once applicable deductions and exemptions have been considered, you arrive at your taxable income.
For example, assume an employee has:
The simplified calculation would therefore use ₦5 million, rather than the full ₦6 million, as the taxable amount.
Important: This is an illustrative example rather than a personal tax assessment. Actual treatment depends on the employee’s circumstances and the current tax rules.
Step 4: Apply the Progressive Tax Rates
Now apply each tax band to the relevant portion of the taxable income.
Using the illustrative taxable income of ₦5,000,000:
|
Taxable income band |
Amount taxed |
Rate |
Tax |
|
First ₦800,000 |
₦800,000 |
0% |
₦0 |
|
Next ₦2,200,000 |
₦2,200,000 |
15% |
₦330,000 |
|
Remaining ₦2,000,000 |
₦2,000,000 |
18% |
₦360,000 |
|
Total |
₦5,000,000 |
₦690,000 |
So, under this simplified example:
Annual tax = ₦690,000
Approximate monthly equivalent:
₦690,000 ÷ 12 = ₦57,500
This demonstrates why progressive taxation matters. The employee does not pay 18% on the entire ₦5 million.
Example: Tax on a ₦1 Million Monthly Salary
Suppose an employee earns:
₦1,000,000 per month
Annual gross salary:
₦1,000,000 × 12 = ₦12,000,000
For illustration, assume the employee’s taxable income after applicable adjustments is also ₦12 million.
The calculation would be:
|
Band |
Taxable amount |
Rate |
Tax |
|
First ₦800,000 |
₦800,000 |
0% |
₦0 |
|
Next ₦2,200,000 |
₦2,200,000 |
15% |
₦330,000 |
|
Next ₦9,000,000 |
₦9,000,000 |
18% |
₦1,620,000 |
|
Total |
₦12,000,000 |
₦1,950,000 |
The illustrative annual tax would therefore be:
₦1,950,000
And the approximate monthly tax equivalent would be:
₦162,500
Again, this example assumes the entire ₦12 million represents taxable income. In a real PAYE calculation, applicable deductions and other rules must be considered.
Example: Tax on a ₦2 Million Monthly Salary
Now consider an employee earning:
₦2,000,000 per month
Annual gross salary:
₦24,000,000
For a simplified illustration, assume taxable income is also ₦24 million.
|
Band |
Amount taxed |
Rate |
Tax |
|
First ₦800,000 |
₦800,000 |
0% |
₦0 |
|
Next ₦2,200,000 |
₦2,200,000 |
15% |
₦330,000 |
|
Next ₦9,000,000 |
₦9,000,000 |
18% |
₦1,620,000 |
|
Next ₦12,000,000 |
₦12,000,000 |
21% |
₦2,520,000 |
|
Total |
₦24,000,000 |
₦4,470,000 |
The simplified annual tax would be ₦4,470,000.
The approximate monthly equivalent would be:
₦4,470,000 ÷ 12 = ₦372,500
This is an illustration of the progressive bands and should not be treated as an individual’s final PAYE assessment.
Is the First ₦800,000 Salary Tax-Free?
Under the individual tax rates introduced by the Nigeria Tax Act 2025, the first ₦800,000 of taxable income is taxed at 0%.
This does not necessarily mean that someone earning more than ₦800,000 pays no tax. It means the first ₦800,000 falls within the 0% band, while the portions above that threshold are assessed under the subsequent bands.
For example, if taxable income is ₦3 million:
Therefore:
Tax = ₦0 + ₦330,000 = ₦330,000
What Is PAYE in Nigeria?
PAYE stands for Pay As You Earn.
It is the system through which employers deduct applicable personal income tax from employees’ earnings and remit it to the relevant tax authority.
Instead of requiring an employee to pay the entire annual tax bill at the end of the year, PAYE generally spreads tax deductions across the employee’s pay periods.
For example, if an employee’s annual PAYE liability is ₦1,200,000, the simplified monthly equivalent would be:
₦1,200,000 ÷ 12 = ₦100,000
The actual payroll calculation may vary depending on the employee’s circumstances and applicable rules.
Gross Salary vs Taxable Income
One of the biggest mistakes employees make is treating gross salary and taxable income as exactly the same thing.
They can be different.
Gross salary refers broadly to the employee’s total earnings before applicable deductions.
Taxable income is the amount that remains subject to tax after applying the relevant rules concerning deductions, exemptions, reliefs and other adjustments.
This distinction is important when calculating salary tax.
What About Allowances and Benefits?
Employees may receive more than their basic monthly salary.
Examples can include:
Whether a particular payment or benefit is taxable and how it should be valued depends on the applicable tax rules and the circumstances in which it is received.
Therefore, employees should avoid assuming that only their basic salary matters when determining their tax position.
How Much Salary Is Tax-Free in Nigeria?
The answer depends on what is meant by “tax-free.”
Under the current individual tax bands, the first ₦800,000 of taxable income is subject to a 0% tax rate.
However, an individual’s overall tax position depends on their total taxable income and applicable deductions, exemptions and reliefs.
Therefore, it is more accurate to say that the first ₦800,000 of taxable income is taxed at 0%, rather than saying that everyone earning below a particular gross salary automatically pays no tax.
Common Mistakes When Calculating Salary Tax
Applying One Tax Rate to the Entire Salary
A progressive tax system does not work by applying the highest applicable rate to the entire income.
Confusing Gross Salary With Taxable Income
Always determine the relevant taxable amount before applying the tax bands.
Using Old Tax Tables
Nigeria’s tax rules changed from 1 January 2026. Calculations based on older PAYE structures may no longer accurately reflect the current framework.
Ignoring Additional Income
If you earn income outside your employment, your overall personal tax position may require consideration of those additional sources.
Assuming PAYE Is the Entire Tax Story
PAYE is the mechanism for collecting employment-related income tax, but individuals can have broader filing and reporting obligations.
Forgetting to Keep Payroll Records
Employees should retain payslips, PAYE information and other relevant tax records.
Tips for Calculating Your Salary Tax More Accurately
If you want to estimate your tax liability, these practical tips can help:
Use annual figures first. Tax bands are generally easier to understand when you calculate annual taxable income before converting the result into a monthly estimate.
Separate gross income from taxable income. Do not immediately apply tax rates to your gross salary.
Check the current tax legislation. Tax rates, thresholds and administrative requirements can change.
Keep records of deductions. Make sure you understand which deductions are recognised under the applicable rules.
Review your payslip. Compare PAYE deductions against your expected tax position.
Seek professional advice where necessary. Complex income arrangements, multiple sources of income and business interests can require professional tax advice.
Learn the Fundamentals of Taxation
Calculating salary tax becomes easier when you understand the principles behind taxable income, deductions, tax rates, PAYE and tax administration.
If you want to develop your knowledge beyond a basic salary calculation, Foundations in Taxation can help you build a stronger understanding of taxation concepts and their practical application.
Build Stronger Taxation Knowledge
Develop a practical understanding of core taxation principles, tax compliance and tax administration to approach financial and professional tax responsibilities with greater confidence.
Frequently Asked Questions About How to Calculate Tax on Salary in Nigeria
How do I calculate tax on salary in Nigeria?
To calculate salary tax, determine your annual income, identify applicable deductions and exemptions, calculate taxable income and apply the progressive individual tax rates to the relevant income bands.
What is the tax rate on salary in Nigeria in 2026?
Under the Nigeria Tax Act 2025, individual taxable income is subject to progressive rates ranging from 0% to 25%, depending on the applicable income band.
Is the first ₦800,000 tax-free in Nigeria?
The first ₦800,000 of taxable income is taxed at 0% under the current individual tax bands. Income above that amount may be taxed at the applicable progressive rates.
How much tax will I pay on a ₦500,000 salary?
The exact amount depends on your annual income and applicable deductions, exemptions and reliefs. A monthly salary of ₦500,000 corresponds to ₦6 million annually before considering applicable adjustments.
How much tax will I pay on a ₦1 million salary?
A salary of ₦1 million per month equals ₦12 million annually. The actual tax depends on taxable income after applicable adjustments. In a simplified example where the full ₦12 million is taxable, the progressive calculation produces annual tax of approximately ₦1.95 million.
What is PAYE tax in Nigeria?
PAYE, or Pay As You Earn, is a system under which employers deduct applicable personal income tax from employees’ earnings and remit it to the relevant tax authority.
Is salary taxed monthly or annually in Nigeria?
Personal income tax is assessed using annual income, while PAYE deductions are generally made from employees’ periodic pay. Annual calculations can therefore be used to understand the overall tax liability.
Do I pay tax on allowances in Nigeria?
Some employment allowances and benefits may be taxable, depending on their nature and the applicable tax rules. Employees should consider their total employment income rather than automatically excluding every allowance.
Has salary tax changed in Nigeria in 2026?
Yes. Nigeria’s tax reform legislation introduced a new individual tax structure effective from 1 January 2026, including revised progressive tax bands
Where can I learn more about taxation in Nigeria?
You can consult the Nigeria Revenue Service and the applicable Nigerian tax legislation for current official requirements. For broader professional knowledge, a structured Foundations in Taxation course can help you understand key taxation concepts.
Final Thoughts
Knowing how to calculate tax on salary in Nigeria starts with understanding the difference between gross income and taxable income and then applying the progressive tax bands correctly.
For 2026, the first ₦800,000 of taxable income is taxed at 0%, while higher portions are taxed progressively at rates from 15% to 25%. However, your actual PAYE deduction depends on your individual circumstances and the applicable deductions, exemptions and tax rules.
Rather than simply multiplying your salary by a single percentage, work through the calculation systematically and keep your payroll and tax records up to date. This will give you a much clearer picture of your tax obligations and expected take-home income.
Strengthen Your Taxation Knowledge
Develop a practical understanding of core taxation principles, tax compliance and tax administration to approach financial and professional tax responsibilities with greater confidence.
