Employment Tax Calculator

PAYE is a system of income tax deduction where employers withhold a portion of an employee’s salary and remit it to the government. This is regulated by the Personal Income Tax Act (PITA), which ensures that employees contribute their fair share to national revenue.

How PAYE is Calculated in Nigeria

The Nigerian tax system is progressive, meaning the tax rate increases as income increases. The PAYE tax bands are structured as follows:

Exemptions and Deductions

Before applying PAYE tax rates, the following deductions reduce the taxable income:

• Consolidated Relief Allowance (CRA): 20% of gross income + ₦200,000.
• Pension Contribution: Up to 8% of basic salary.
• National Housing Fund (NHF): 2.5% of gross salary.

Example PAYE Calculation

Suppose an employee earns ₦2,400,000 annually (₦200,000 monthly), their PAYE calculation follows:

1. Calculate Consolidated Relief Allowance (CRA):
   • CRA = (20% of ₦2,400,000) + ₦200,000
   • CRA = ₦480,000 + ₦200,000 = ₦680,000
2. Determine Taxable Income:
   • Taxable Income = ₦2,400,000 - ₦680,000 = ₦1,720,000
3. Apply PAYE Tax Rates:
   • ₦300,000 at 7% = ₦21,000
   • ₦300,000 at 11% = ₦33,000
   • ₦500,000 at 15% = ₦75,000
   • ₦620,000 at 19% = ₦117,800
4. Total PAYE = ₦21,000 + ₦33,000 + ₦75,000 + ₦117,800 = ₦246,800 annually (₦20,566 monthly).

The National Housing Fund (NHF) is a government initiative to help Nigerian workers access low-interest mortgage loans. Employees contribute 2.5% of their monthly salary, which is deducted before tax.

Contributions are mandatory for employees earning ₦3,000 and above per month and are managed by the Federal Mortgage Bank of Nigeria (FMBN).

Nigeria’s Pension Reform Act ensures employees save for retirement through mandatory contributions:

• Employees contribute 8% of their basic salary.
• Employers contribute at least 10%.

These funds are managed by Pension Fund Administrators (PFAs) and regulated by the National Pension Commission (PenCom).