PAYE Calculation in Nigeria: A Clear Guide for Employers & Employees

PAYE calculation in Nigeria determines how employees’ income tax is deducted and remitted by employers.  Understanding it is crucial for compliance and fair taxation. Calculating taxes can be confusing, but this guide will break down everything step by step from rates to reliefs, deductions, and examples.

This guide simplifies PAYE calculation in Nigeria for employers and workers, what deductions apply, and how to stay compliant in 2025.

 What is PAYE in Nigeria?

PAYE (Pay-As-You-Earn) is a tax system governed by the Personal Income Tax Act (PITA). It requires employers to deduct tax directly from employees’ salaries and remit it to the State Internal Revenue Service (SIRS) each month.

In Simple Terms:

• Employers act as tax collectors.

• Employees are taxed based on their income level and benefits.

• The deducted tax goes to the state where the employee resides.

Who Pays PAYE?

• Employees: Anyone earning a salary or wage in Nigeria, whether full-time or contract-based.

• Employers: Responsible for calculating, deducting, and remitting the PAYE tax by the 10th day of the following month.

• Expatriates: Must also comply if they earn income in Nigeria or are employed by a Nigerian company.

PAYE Tax Rates and Bands in Nigeria (2025)

The Nigerian tax system uses a progressive rate, meaning higher income earners pay more.

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Minimum tax: 1% of gross income applies if total tax payable is lower than this amount.

Step-by-Step PAYE Calculation in Nigeria

Let’s walk through a sample calculation so it’s easy to understand.

Example:

Employee Salary: ₦400,000 per month (₦4,800,000 annually)

Step 1: Determine Gross Income

₦4,800,000 per year

Step 2: Deduct Statutory Reliefs

• Consolidated Relief Allowance (CRA): Higher of ₦200,000 or 1% of gross income, plus 20% of gross income
  = ₦200,000 + (20% × ₦4,800,000) = ₦1,160,000

• Pension Contribution: 8% × ₦4,800,000 = ₦384,000

• NHF Contribution: 2.5% × ₦4,800,000 = ₦120,000

Step 3: Compute Taxable Income

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₦4,800,000 − (₦1,160,000 + ₦384,000 + ₦120,000) = ₦3,136,000

Step 4: Apply Tax Rates

• First ₦300,000 @ 7% = ₦21,000

• Next ₦300,000 @ 11% = ₦33,000

• Next ₦500,000 @ 15% = ₦75,000

• Next ₦500,000 @ 19% = ₦95,000

• Next ₦1,536,000 @ 21% = ₦322,560

Total PAYE Tax: ₦546,560 annually (≈ ₦45,546 monthly)

 Common PAYE Deductions and Reliefs

To calculate PAYE accurately, every employer must account for these:

 Employer’s Responsibilities for PAYE

Employers must:

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• Register with the relevant State Internal Revenue Service (SIRS).

• Deduct and remit PAYE tax by the 10th day of the following month.

• File annual returns (Form H1) not later than 31st January each year.

• Issue Tax Deduction Cards (Form H2) to employees.

Penalty for late remittance: 10% of unpaid tax + interest at commercial rates.

 Common PAYE Challenges

1. Incorrect computation of reliefs and allowances.

2. Late or incomplete remittance to SIRS.

3. Inaccurate employee tax records.

4. Misunderstanding where to remit for remote workers.

How Payroll Software Simplifies PAYE in Nigeria

Manual payroll calculations are time-consuming and error-prone.
That’s where intelligent tools like Zaccheus come in.

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With Zaccheus’ payroll automation, accountants and SMEs can:

• Automatically calculate PAYE, pension, NHF, and NHIS.

• Update tax rates and reliefs dynamically.

• Generate compliance reports for each state’s IRS.

• Prevent costly penalties and human errors.

Zaccheus makes PAYE calculation as easy as clicking “Generate Payroll.”

Tips for Employers and Accountants

• Always keep up-to-date employee records.

• Confirm state residency before remitting taxes.

• Validate all reliefs and deductions annually.

• Use automated payroll tools to reduce errors.

 Conclusion

Understanding PAYE calculation in Nigeria is key for every employer and employee.
It ensures fair taxation, compliance with PITA, and smooth operations.

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By automating payroll with solutions like Zaccheus, accountants and business owners can save time, improve accuracy, and stay on top of compliance effortlessly.

 Try Zaccheus today to simplify PAYE and payroll management across Nigeria.

FAQ Section

1. What is PAYE in Nigeria?

PAYE (Pay-As-You-Earn) is a system where employers deduct income tax from employees’ salaries and remit it monthly to the State Internal Revenue Service.

2. How is PAYE calculated?

PAYE is calculated on an employee’s annual income after deducting reliefs such as the Consolidated Relief Allowance, pension, NHF, and insurance premiums.

3. What is the current PAYE rate in Nigeria?

Rates range from 7% to 24% based on income bands. Minimum tax applies if the total payable is below 1% of gross income.

4. Who remits PAYE tax in Nigeria?

Employers are responsible for deducting and remitting PAYE tax to the employee’s state of residence.

5. What happens if PAYE isn’t remitted on time?

Late remittance attracts a 10% penalty plus interest until the outstanding amount is cleared.