PAYE Tax in Nigeria: Complete 2025 Guide

If you're an employed Nigerian, you've likely noticed deductions from your salary labeled as PAYE or income tax. Pay-As-You-Earn (PAYE) is the system through which employees pay their income tax, with employers deducting and remitting tax on their behalf. Understanding how PAYE works helps you verify that you're paying the correct amount and plan your finances effectively.

This comprehensive guide explains PAYE in Nigeria: how it's calculated, what rates apply, what allowances reduce your tax burden, and what rights you have as a taxpayer.

What Is PAYE?

Pay-As-You-Earn is a method of collecting personal income tax from employees at source. Instead of employees paying tax directly to tax authorities, employers deduct the appropriate tax from each paycheck and remit it to the relevant state tax authority (State Internal Revenue Service or SIRS).

Who Pays PAYE?

All employees with taxable income above the minimum threshold are subject to PAYE. This includes full-time employees, contract workers on payroll, and anyone receiving regular employment income. Self-employed individuals and business owners pay income tax differently (direct assessment rather than PAYE).

Which Authority Receives PAYE?

PAYE is paid to the State Internal Revenue Service (SIRS) of your state of residence. If you live in Lagos, your PAYE goes to Lagos IRS. If you live in Abuja (FCT), it goes to FCT-IRS. Your employer is responsible for remitting to the correct state.

How PAYE Is Calculated

Gross Income

Calculation starts with your total income from employment, including basic salary, housing allowance, transport allowance, leave allowance, other allowances and benefits, and bonuses and commissions.

Consolidated Relief Allowance (CRA)

Before applying tax rates, you receive relief that reduces your taxable income. The CRA is the higher of 1% of gross income plus ₦200,000 or 20% of gross income.

For example, if your gross annual income is ₦3,000,000, 1% of ₦3,000,000 + ₦200,000 = ₦230,000. Meanwhile, 20% of ₦3,000,000 = ₦600,000. You get the higher amount: ₦600,000 CRA.

Other Deductions

Additional deductions include pension contributions (mandatory 8% employee contribution), National Housing Fund (2.5% of basic salary if applicable), National Health Insurance Scheme contributions, life assurance premiums (with limits), and mortgage interest (for owner-occupied property).

Taxable Income

Taxable Income equals Gross Income minus CRA minus other deductions.

Tax Rates (Graduated Scale)

Nigeria uses graduated tax rates. The first ₦300,000 is taxed at 7%. The next ₦300,000 (₦300,001 to ₦600,000) is taxed at 11%. The next ₦500,000 (₦600,001 to ₦1,100,000) is taxed at 15%. The next ₦500,000 (₦1,100,001 to ₦1,600,000) is taxed at 19%. The next ₦1,600,000 (₦1,600,001 to ₦3,200,000) is taxed at 21%. Above ₦3,200,000 is taxed at 24%.

PAYE Calculation Example

Let's calculate PAYE for an employee with ₦500,000 monthly gross salary (₦6,000,000 annually).

Step 1: Calculate CRA

1% of ₦6,000,000 + ₦200,000 = ₦260,000. Meanwhile, 20% of ₦6,000,000 = ₦1,200,000. CRA is the higher amount: ₦1,200,000.

Step 2: Calculate Other Deductions

Pension (8% of gross) equals ₦480,000. Total deductions equal ₦1,680,000.

Step 3: Calculate Taxable Income

Taxable Income equals ₦6,000,000 minus ₦1,680,000 which equals ₦4,320,000.

Step 4: Apply Tax Rates

The first ₦300,000 at 7% equals ₦21,000. The next ₦300,000 at 11% equals ₦33,000. The next ₦500,000 at 15% equals ₦75,000. The next ₦500,000 at 19% equals ₦95,000. The next ₦1,600,000 at 21% equals ₦336,000. The remaining ₦1,120,000 at 24% equals ₦268,800. Total annual tax is ₦828,800, which means monthly PAYE is approximately ₦69,067.

Minimum Tax Rule

If your calculated tax is below 1% of gross income, you pay a minimum tax of 1% instead. This ensures everyone contributes something to the tax system.

Employer Responsibilities

Deduction and Remittance

Employers must correctly calculate PAYE for each employee, deduct it from monthly salary, and remit to the relevant State IRS by the 10th of the following month.

Annual Returns

Employers file annual returns showing all PAYE deducted for each employee. They issue Form A (certificate of taxes deducted) to employees. They reconcile payments with tax authorities.

New Employees

When hiring, employers should request the employee's TIN. They register employees with the relevant state tax authority and begin proper PAYE deduction from the first salary.

Employee Rights and Obligations

Your Rights

You have the right to receive pay slips showing PAYE deducted. You can request your TIN from your employer or state IRS. You're entitled to receive Form A at year end. You can verify PAYE was remitted by checking with state IRS.

Your Obligations

Provide accurate information to your employer. Notify your employer of changes affecting tax (additional income sources, dependents). Keep records of income and tax paid. Report if you suspect your employer isn't remitting PAYE.

Common PAYE Questions

What If I Work for Multiple Employers?

Each employer deducts PAYE separately. You may need to file a personal return to reconcile. Inform your secondary employers about your primary employment. You may owe additional tax if combined income moves you to higher brackets.

What If I Change Jobs Mid-Year?

Get Form A from your old employer. Provide it to your new employer. The new employer should factor in previous earnings and tax paid. Keep records in case of discrepancies.

Can I Reduce My PAYE?

Legitimate ways to reduce PAYE include maximizing pension contributions (tax-deductible up to limits), National Housing Fund contributions, approved life insurance premiums, and mortgage interest payments for your primary residence. Claiming dependents (children and parents) also helps. Always keep documentation to support claims.

What About Bonuses and Gratuities?

Bonuses are taxable income, added to regular salary for tax calculation. Gratuities on retirement may have different treatment. Some terminal benefits have partial exemptions. Consult your HR or tax advisor for specific situations.

Registering for a Tax Identification Number (TIN)

Every Nigerian taxpayer should have a TIN for tax purposes.

How to Get a TIN

Apply through your employer's registration process, or visit your state IRS office directly. You can also apply online through the Joint Tax Board portal. Required documents include a valid ID, passport photograph, and proof of residence.

Uses of TIN

TIN is required for opening certain bank accounts, processing passport applications, government contracts and jobs, registering for some professional licenses, and land and property transactions.

Tax Clearance Certificate

A Tax Clearance Certificate (TCC) shows you're compliant with tax obligations for the past three years.

Who Needs TCC?

TCC may be required for government contracts, certain employment, passport renewal, vehicle registration, and property transactions.

How to Obtain TCC

Ensure PAYE has been properly remitted. Apply through your state IRS. Provide evidence of tax payment (Form A from employer). Pay any applicable fees. Receive TCC after verification.

Penalties for Non-Compliance

For Employers

Failure to deduct PAYE carries penalties. Late remittance incurs interest and fines. Non-filing of annual returns attracts penalties. Employers may face prosecution for serious violations.

For Employees

While employees generally aren't penalized for employer failures, providing false information to reduce tax is an offense. Knowingly participating in tax evasion has consequences.

Recent Changes and Developments

Tax laws evolve, so stay informed about changes in tax rates, new relief provisions, digitalization of tax filing, and harmonization across states.

Follow announcements from FIRS and your state IRS for updates.

Frequently Asked Questions

Is PAYE the same as income tax?

PAYE is a method of collecting income tax from employees. It's the same as personal income tax, just collected at source through payroll deductions.

What if my employer doesn't remit my PAYE?

This is the employer's legal obligation. If you suspect non-remittance, first raise it with HR. If unresolved, report to your state IRS. Keep your pay slips as evidence of deduction.

Can I get a refund if I overpaid PAYE?

Yes, if you can prove overpayment. This usually requires filing an individual tax return. Refunds can take time to process. Keep all documentation to support your claim.

Conclusion

Understanding PAYE helps you verify you're paying the correct amount of tax and take advantage of legitimate deductions. While your employer handles the mechanics, being informed protects you from errors and ensures you can plan your finances effectively.

Keep records of your income and tax payments, ensure you have a valid TIN, and don't hesitate to ask your HR department or a tax professional if you have questions about your PAYE calculations. Tax compliance is not just a legal obligation—it's your contribution to Nigeria's development while securing your own rights as a taxpayer.