Pay As You Earn (PAYE) Nigeria is a personal income tax system that requires employers to deduct income tax from their employees’ salaries monthly and remit it to the government. Whether you’re a Nigerian employee, business owner, HR manager, or an expat working in Nigeria, understanding how PAYE works is essential for staying compliant and avoiding penalties.
This guide covers what PAYE is, who needs to pay, how it's calculated, current tax rates, employer duties, and crucial tips for Nigerians and foreigners working in Nigeria.
What is PAYE? (Pay As You Earn) Explained
PAYE (Pay As You Earn) is an income tax collection system where employers directly deduct tax from employees’ wages or salaries and remit it to the relevant tax authorities each month.
History and Purpose:
Introduced in Nigeria in 1940, PAYE was designed to simplify tax collection and ensure regular revenue flow for the government. Its main aim is to make tax deduction automatic and hassle-free for employees.
PAYE vs. Global Systems:
Nigeria’s PAYE system is similar to the UK and other countries, where employers handle monthly tax deductions. However, Nigeria combines federal (FIRS) and state Inland Revenue Services (SIRS) responsibilities, making compliance location-dependent.
Who is Required to Pay PAYE in Nigeria?
- Nigerian Citizens: If you earn an income through paid employment, you’re required by law to pay PAYE. Casual, contract, and permanent staff are all covered, regardless of whether work is full- or part-time.
- Expats and Foreign Workers: As a non-Nigerian working in Nigeria, you are still subject to PAYE on income earned locally. This applies whether you’re on a local or seconded international contract.
- Employers’ Responsibilities: Every employer, Nigerian or foreign, must deduct the correct PAYE amount from staff salaries and remit to the relevant state (where the employment takes place).
How the PAYE System Works in Nigeria
How PAYE is Withheld and Remitted
- Employers/HR Role: Employers (or their payroll/HR teams) calculate, deduct, and remit PAYE monthly to the State IRS where the employee works.
- Remittance Deadlines: PAYE deductions must be remitted by the 10th day of the following month to the relevant tax authority (e.g., Lagos State IRS for workers based in Lagos).
PAYE on Multiple Sources of Income or Multiple Jobs
- If you work for more than one employer, PAYE is deducted by each employer based on your income from them. You’re expected to file an annual return so total taxes paid match your total chargeable income.
PAYE for Pensioners and Special Cases
- Most pension income is not taxable under Nigerian law. However, retiring employees with other forms of compensation (like gratuities) should check specific exemptions.
PAYE Calculation in Nigeria: Step-By-Step Guide
Understanding Chargeable Income
- Chargeable income is your gross income (salary, wages, bonus, allowances, etc.) minus allowable deductions mandated by law.
- Allowable Deductions include:
- Pension contributions (maximum 8% of basic salary, housing, and transport)
- National Housing Fund (NHF) contributions
- National Social Insurance Trust Fund (NSITF) contributions
- Life assurance premium
- Consolidated Relief Allowance (CRA): Higher of N200,000 or 1% of gross pay, plus 20% of gross income.
Current (2025) PAYE Tax Rates and Bands
Note: From 2025, PAYE tax rates in Nigeria (annual taxable income):
| Annual Chargeable Income (₦) | Tax Rate |
|---|---|
| First ₦300,000 | 7% |
| Next ₦300,000 (₦300,001 – ₦600,000) | 11% |
| Next ₦500,000 (₦600,001 – ₦1,100,000) | 15% |
| Next ₦500,000 (₦1,100,001 – ₦1,600,000) | 19% |
| Next ₦1,600,000 (₦1,600,001 – ₦3,200,000) | 21% |
| Above ₦3,200,000 | 24% |
Reference: FIRS Tax Rates, LIRS PAYE Guide
Worked Example: PAYE Calculation for a Typical Salary
Scenario:
- Gross monthly salary: ₦250,000
- Pension (8%): ₦20,000
- NHF (2.5%): ₦6,250
Stepwise Breakdown
- Gross Annual Salary: ₦250,000 × 12 = ₦3,000,000
- Allowable Deductions:
- Pension: ₦20,000 × 12 = ₦240,000
- NHF: ₦6,250 × 12 = ₦75,000
- Consolidated Relief Allowance (CRA):
1% of gross: ₦30,000 or ₦200,000 (whichever is higher) + 20% of gross
₦200,000 + (20% × ₦3,000,000 = ₦600,000) = ₦800,000
Total deductions: ₦240,000 + ₦75,000 + ₦800,000 = ₦1,115,000
Chargeable Income:
Gross Income – Deductions: ₦3,000,000 – ₦1,115,000 = ₦1,885,000
Apply Tax Bands:- First ₦300,000 at 7% = ₦21,000
- Next ₦300,000 at 11% = ₦33,000
- Next ₦500,000 at 15% = ₦75,000
- Next ₦500,000 at 19% = ₦95,000
- Remaining ₦285,000 at 21% = ₦59,850
- Total PAYE annual tax: ₦21,000 + ₦33,000 + ₦75,000 + ₦95,000 + ₦59,850 = ₦283,850
- Monthly PAYE tax: ₦283,850 ÷ 12 ≈ ₦23,654
PAYE Compliance: Key Rules and Deadlines
- Employer Remittance: PAYE must be remitted by the 10th day of the month following deduction.
- Tax Cards & PAYE Certificates: Employers must provide employees with tax deduction cards/tax certificates proving compliance.
- Penalties: Late or non-remittance attracts penalties—usually outstanding tax plus interest and fines as specified by FIRS or SIRS.
- Small Employers: Must still withhold and remit PAYE even if employing just one staff member.
Common PAYE FAQs for Nigerians and Expats
Q1: How much is PAYE on NGN 50,000 monthly salary?
- If no other income/deductions: Your monthly gross = ₦50,000. Annual = ₦600,000.
- After deductions, if chargeable income ≈ ₦250,000, PAYE may be zero or very low (especially if deductions such as pension/NHF apply). Employees below a taxable threshold often pay nothing after allowable reliefs.
Q2: Can I check if my employer paid my PAYE?
- Yes. Request your tax card or check with your state IRS (e.g., Lagos IRS portal [LIRS]) using your tax identification number (TIN).
Q3: What if I overpay or underpay tax?
- Overpayments should be refunded or credited against future years. Underpayments must be settled with the IRS, possibly with penalties.
Q4: Are rules different for expats?
- The calculation process is identical, but check your employment contract and local double taxation agreements. All locally-earned income is subject to Nigerian PAYE.
Q5: How does PAYE handle bonuses, benefits, or allowances?
- Most cash allowances and non-cash benefits (fringe benefits) are chargeable income and must be included in the tax calculation.
Useful Tools, Calculators, and Further Resources
- LIRS PAYE Calculator
- Federal Inland Revenue Service (FIRS) – Tax Information
- Lagos State IRS – PAYE FAQs
- Official PAYE Tax Forms & Guides
- Related Nigerian Payroll and Tax Content
Final Thoughts: Maximizing Compliance and Minimizing Hassles
Understanding PAYE (Pay As You Earn) in Nigeria is vital for every employee and employer to avoid fines, keep accurate payroll records, and remain tax-compliant. Always keep documentation (like payslips and tax cards), use reliable calculators, and seek updates directly from official sources. For expats or those with complex income types, liaise with your HR or local tax professional to ensure everything is in order.
stay informed | stay compliant | plan better for 2025
Disclaimer: This guide is for informational purposes and may not cover special situations. For questions on your specific tax matter, consult a certified payroll or tax professional.
References:
- FIRS Official Website
- LIRS PAYE Calculator
- Nigeria PAYE Tax Law Overview
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