New tax law in Nigeria: what employers must change in payroll

On 26 June 2025 President Bola Tinubu signed four tax reform Acts: the Nigeria Tax Act, the Nigeria Tax Administration Act, the Nigeria Revenue Service (Establishment) Act and the Joint Revenue Board (Establishment) Act. For employers, the first two matter most. They rewrote how PAYE is calculated and restated how it is filed, with effect from 1 January 2026.

This guide is for the people who run payroll. It sets out what changed, what stayed the same, and the checklist to work through if your payroll still carries 2025 logic. For the employee view, see our Insights article on how the new tax law affects your team.

What the new tax law changed for employers

1 Jan 2026Effective dateJanuary 2026 salaries were the first under the new rules

₦800,000Taxed at 0%The first slice of annual taxable income

25%New top rateOn taxable income above ₦50 million a year

No CRARelief removedReplaced by rent relief of 20% of rent, up to ₦500,000

₦70,000Exempt payIncome at or below the minimum wage pays no PAYE

10% + interestEmployer penaltyFor failing to deduct or remit PAYE

What changed

New PAYE bands

The six bands of the Personal Income Tax Act, from 7% to 24%, are replaced by a new schedule. The first ₦800,000 of annual taxable income is taxed at 0%, and the rates on later slices are 15%, 18%, 21%, 23% and 25%.

PAYE bands before and after 1 January 2026

Until 31 December 2025From 1 January 2026

First slice₦300,000 at 7%₦800,000 at 0%

Second slice₦300,000 at 11%₦2,200,000 at 15%

Third slice₦500,000 at 15%₦9,000,000 at 18%

Fourth slice₦500,000 at 19%₦13,000,000 at 21%

Fifth slice₦1,600,000 at 21%₦25,000,000 at 23%

Top rate24% above ₦3,200,00025% above ₦50,000,000

Main reliefCRA: ₦200,000 or 1% of gross, plus 20% of grossRent relief: 20% of rent, up to ₦500,000

Minimum wage earnersExemptExempt

The Consolidated Relief Allowance ended

CRA was the largest relief for most employees under the old law: the higher of ₦200,000 or 1% of gross income, plus 20% of gross income. It no longer applies. Any payroll formula that still subtracts CRA overstates take-home pay for some staff and understates it for others.

Rent relief arrived

Employees can deduct 20% of the annual rent they pay for their home, up to ₦500,000. It only reaches payroll if the employee tells you and you have evidence, so most employers now ask for rent details during onboarding and at the start of each year.

Minimum wage earners are exempt

Employment income at or below the national minimum wage, ₦70,000 a month, is not taxed.

Allowable deductions are restated

Pension contributions, NHF, NHIS, life insurance premiums and mortgage interest on an owner-occupied home remain deductible. Our step-by-step PAYE guide shows the order in which they apply.

How much each salary changed

The chart compares monthly PAYE under the old and new rules for the same salary, with a standard split and 8% pension. Hover or tap a bar for the figures, or open the table view.

Monthly PAYE under the old and new rules

Same salary split and 8% pension, no other reliefs.

Old rules (to 31 Dec 2025) Nigeria Tax Act 2025 (from 1 Jan 2026)

Show the numbers

Source: Nigeria Tax Act 2025, Fourth Schedule (rates) and Section 30 (deductions and rent relief); Personal Income Tax Act (as amended) for the old rules. Assumes basic, housing and transport make up 90% of gross, 8% employee pension on that amount, no rent relief or other reliefs. Rates effective 1 January 2026. Estimates only.

In this comparison, PAYE on ₦100,000 a month falls by ₦1,500 and PAYE on ₦1,000,000 a month falls by ₦3,847. At ₦2,000,000 a month it rises by ₦14,953, and at ₦5,000,000 by ₦143,233. Results for your staff depend on their salary split, rent and other reliefs, so run them through the PAYE calculator before you explain the change.

What stayed the same

• Who collects PAYE. Tax on employment income is still paid to the state tax authority where the employee is resident, such as the Lagos State Internal Revenue Service for Lagos residents.
• The monthly deadline. PAYE deducted from salaries is due by the 10th of the following month.
• The annual employer return. Employers file a return of each employee’s pay and tax for the previous year by 31 January. LIRS restated the deadline in January 2026 for the 2025 year, citing section 14 of the Nigeria Tax Administration Act 2025.
• Pension, NHF, NSITF and ITF. The reform Acts did not change the separate statutory deductions and levies. Our statutory deductions guide covers them.

LIRS restated in January 2026 that employer returns are due by 31 January every year.

Key dates

The reform timeline for payroll teams

Dates from the reform Acts and LIRS public statements.

1. 26 June 2025

   Four reform Acts signed

   Nigeria Tax Act, Nigeria Tax Administration Act, Nigeria Revenue Service Act and Joint Revenue Board Act

2. 1 January 2026

   New PAYE rules apply

   January 2026 salaries taxed under the Nigeria Tax Act 2025

3. 31 January 2026

   Employer returns for 2025

   The last annual return under the old rules

4. 10 February 2026

   First PAYE remittance under the new rules

   For January 2026 salaries

5. 31 March 2026

   Individual returns

   Deadline for individuals filing their own annual returns

6. 31 January 2027

   First employer return under the new rules

   Covers pay and tax for 2026

Penalties employers should know

The Nigeria Tax Administration Act 2025 makes the employer liable when PAYE is not deducted or not remitted. The employer pays the tax that should have been deducted, a penalty of 10% of that tax, and interest at the Central Bank of Nigeria rate. The penalty applies even if the employee never complains, which is why errors carried over from 2025 formulas matter.

The employer checklist

Work through this list once for the system, and again whenever you onboard a new payroll officer.

New tax law payroll checklist

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System

• Replace the old bands with the 2026 schedule
• Remove CRA from every formula and report
• Add a rent relief field, capped at ₦500,000
• Exempt staff paid at or below ₦70,000 a month
• Keep pension, NHF, NHIS, life insurance and mortgage interest as deductions

Staff and records

• Ask each employee for annual rent and evidence
• Explain the change in take-home pay before the payslip arrives
• Update payslip labels, removing CRA references
• File each employee’s rent evidence with their payroll record

Remittance and filing

• Remit PAYE to each employee’s state of residence by the 10th
• Diary the 31 January employer return
• Reconcile year-to-date PAYE each quarter

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Explaining the change to staff

Staff hear about the new tax law from the news and from friends, and many expect a bigger change than they see. Three things help:

1. Tell them before payday, with their own figures. A short note showing December 2025 PAYE next to January 2026 PAYE answers most questions.
2. Explain rent relief and how to claim it, because it is the one lever employees control.
3. Be clear about what has not changed: pension and NHF deductions continue as before.

If you use Paystat, Workstat’s payroll product, ask our team how the 2026 rules are set up for your account. Whatever system you use, test it against the worked examples in our PAYE calculation guide.