What Businesses Need to Know About Payroll and PAYE Computation Under the New Tax Act

Operating Payroll and PAYE Computation under the New Tax Act is now a top priority for every employer in Nigeria. However, The Nigeria Tax Act (NTA) 2025, which fully kicked in on January 1, 2026, has changed the rules for PAYE (Pay-As-You-Earn) and payroll management. If your business is still using old templates, you risk heavy fines from the State Internal Revenue Service (SIRS).

Major changes are here for how businesses in Nigeria handle staff salaries.

Why the New Tax Act Matters

The government’s goal with the 2026 Tax Act is to simplify taxation, reduce the burden on middle-income earners, and improve compliance. For businesses, this means adjusting payroll systems to ensure accuracy and avoid penalties.

Employees earning below ₦10 million annually will generally see a lighter tax burden, while high-income earners will face slightly higher rates under the new progressive structure. If you are a business owner or HR manager, here is a simple breakdown of what you need to know to stay out of trouble with the tax man.

1. The New Tax-Free Threshold

Under the new law, any employee earning ₦800,000 or less per year (about ₦66,667 per month) does not have to pay a single kobo in income tax.

• Old Rule: Most people paid tax once they earned above the minimum wage.
• New Rule: More money stays in the pockets of low-income earners, helping them cope with the cost of living.

2. Bye-Bye CRA, Welcome Rent Relief

The biggest change in how we calculate tax is the removal of the Consolidated Relief Allowance (CRA). In the past, every worker got a standard 20% + ₦200,000 relief.

• The Replacement: Now, we have Rent Relief.
• How it works: Employees can claim 20% of their annual rent as a tax deduction, but it is capped at ₦500,000.
• Catch: To use this, the employee must provide proof of rent payment (like a receipt) to the tax authorities.

3. New Tax Brackets

Tax is now more “progressive.” This means the more you earn, the higher the percentage you pay on that extra money. Here is the new 2026 table for Chargeable Income (your salary after deductions like Pension and Rent Relief):

Annual Income Band	Tax Rate
First ₦800,000	0% (Tax-Free)
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%

4. Statutory Deductions

Don’t forget that before you calculate the tax, you must subtract these “allowable deductions” from the Gross Salary:

• Pension: 8% (Employee contribution).
• NHF (National Housing Fund): 2.5% of gross income (now compulsory for most).

• NHIS (Health Insurance): Usually 5% of basic salary.

• Life Insurance Premiums: Fully deductible.

For example:

If your staff member earns ₦300,000 monthly (₦3.6m yearly) and pays ₦600,000 rent:

1. Deduct Pension (8%): ₦288,000.
2. Deduct Rent Relief (20% of 600k): ₦120,000.
3. Chargeable Income: ₦3,600,000 – ₦288,000 – ₦120,000 = ₦3,192,000.
4. Tax: The first ₦800k is free. You only pay tax on the remaining ₦2,392,000 based on the bands above.

Action Steps for Business Owners

• Ensure to Collect Rent Receipts: Ask your staff to provide their house rent receipts so you can legally reduce their tax burden.
• Update your Payroll Software: Ensure your Excel sheets or software use the 2026 rates, not the old 2011/Finance Act 2020 ones.
• Always Remit on Time: You must still remit PAYE to the State Internal Revenue Service (SIRS) by the 10th day of the following month.

Failure to follow these new rules can lead to heavy penalties starting from ₦100,000 for the first month of default.