On the 26th of June 2025, President Bola Ahmed Tinubu announced a landmark tax reform that both unifies and overhauls the previous tax regime. These new tax laws change the Nigerian tax landscape in a big way for businesses and individuals.
Today, our spotlight will be on the personal income tax bands and how the new law affects the final take-home pay for individuals.
Following the passage of Nigeria’s landmark 2025 tax reform laws, the Personal Income Tax (PIT) framework has been completely redefined. Effective January 1, 2026, a new set of income tax bands will determine how much employees pay in tax and how HR and payroll teams calculate PAYE.
As an employer, HR professional, accountant, or employee, you should not be confused when the new year rolls in and the laws are being enforced, so we have worked on a guide to help you grasp the basics with ease.
Why the New Tax Bands Matter
The new tax reform brings together a couple of major tax laws and replaces the Personal Income Tax Act with a new system that changes personal income tax rates. These new rates aim to ease the burden on low-income earners, simplify PAYE calculations, align the Nigerian tax system with global best practices, facilitate compliance for individuals and companies, and establish a standard tax administration under the new act.
For employers, this will affect how they calculate payroll and help employees remit taxes, and for employees, the new tax regime will influence their monthly take-home pay. Essentially, due to some factors, some employees will pay more in taxes than others, but the difference will be negligible.
Quick Summary of the New PIT Structure
Let’s take a quick look at how the new personal income tax is structured.
- The first ₦800,000 of annual income is now tax-free.
- Tax bands are adjusted into clearer ranges with updated marginal rates.
- PAYE will be calculated under these new bands from January 1, 2026.
- Benefits, allowances, and certain cash rewards fall under taxable income (unless specifically exempt).
- Payroll teams must update tax tables, software, and employee communication before year-end.
This flashpoint view captures the essentials for employees and employers seeking to comply with the new personal income tax law.
Here is a table that summarizes the new personal income tax bands after enactment. Note the figures refer to yearly income.
| Annual Taxable Income (₦) | Marginal Rate (%) |
| Up to ₦800,000 | 0% (Tax-Free) |
| ₦800,001 – ₦1,600,000 | 7% |
| ₦1,600,001 – ₦3,200,000 | 11% |
| ₦3,200,001 – ₦6,400,000 | 15% |
| ₦6,400,001 – ₦12,800,000 | 19% |
| ₦12,800,001 – ₦25,600,000 | 21% |
| Above ₦25,600,000 | 25% |
Employers, HRs, and employees alike should keep their eyes peeled for other releases from the relevant tax authorities that could influence the bands in the future.
How to Calculate Your Take-Home Pay Under the New Tax Bands
To know how the new system affects your salary, you must understand how PAYE is calculated.
Here’s the simplified process:
Step 1: Start with Gross Income
This includes:
- Basic salary
- Housing, transport, and other allowances
- Bonuses
- Cash benefits
- Any income from employment
Step 2: Subtract Statutory Deductions
These reduce your taxable income:
- Pension contribution (8% employee portion)
- Rent relief – 20% of annual rent (up to ₦500,000)
- NHIS / health insurance deductions
- NHF contributions (if applicable)
Any other statutory reliefs as allowed under the law
Step 3: Apply the New Tax Bands
Tax is applied gradually across all bands, not at a flat rate.
Practical case examples.
Below are practical examples for real-world salary ranges.
Example 1: Low-Income Earner
Gross Monthly Salary: ₦70,000
Annual Income: ₦840,000
Statutory pension (8%): ₦5,600 monthly
Taxable income = ₦70,000 – ₦5,600 = ₦64,400 monthly
Annual taxable = ₦772,800
The first ₦800,000 per year is tax-free.
Since this employee earns below that, their PAYE is effectively ₦0.
Take-Home Pay:
₦70,000 – pension = ₦64,400 net pay
This employee will pay no PIT under the new system.
Example 2: Middle-Income Earner
Gross Monthly Salary: ₦300,000
Annual Income: ₦3,600,000
Pension contribution: ₦24,000
Taxable monthly: ₦276,000
Taxable annual: ₦3,312,000
Now breakdown by bands:
First ₦800,000 → 0%
Next ₦800,000 → 7% = ₦56,000
Next ₦1,600,000 → 11% = ₦176,000
Remaining ₦112,000 → taxed at 15% = ₦16,800
Total Annual PAYE = ₦248,800
Monthly PAYE = ₦20,733
Take-Home Pay:
₦300,000 – ₦24,000 (pension) – ₦20,733 (PAYE)
= ₦255,267
Example 3: High-Income Earner
Gross Monthly Salary: ₦1,500,000
Annual Income: ₦18,000,000
Pension (8%) = ₦120,000
Taxable monthly = ₦1,380,000
Taxable annual = ₦16,560,000
Breakdown:
First ₦800,000 → 0%
Next ₦800,000 → 7% = ₦56,000
Next ₦1,600,000 → 11% = ₦176,000
Next ₦3,200,000 → 15% = ₦480,000
Next ₦6,400,000 → 19% = ₦1,216,000
Next ₦12,800,000 band (only ₦3,760,000 used) → 21% = ₦789,600
Total Annual PAYE = ₦2,717,600
Monthly PAYE = ₦226,466
Take-Home Pay
₦1,500,000 – ₦120,000 – ₦226,466
= ₦1,153,534
Who Benefits the Most Under the New Tax System?
Low-income earners
The ₦800,000 tax-free threshold means many minimum-wage and low-salary workers will pay zero tax.
Middle-income earners
PAYE may reduce slightly due to wider middle bands.
High-income earners
PAYE increases at the top bracket (21% and 25%).
What Counts as Taxable Income Under the 2026 Law?
At this point, the question on your mind would be, “What part of my income am I going to be paying taxes on?” We have a short list of what the new tax framework would consider taxable and not taxable.
The new consolidated tax framework considers these as taxable:
- Basic salary
- Allowances (housing, transport, meals, utilities)
- Overtime and shift allowances
- Bonuses and commissions
- Director remuneration
- Cash gifts from employers
- Benefits in kind (unless specifically exempt)
Not taxable:
- Employer’s contribution to pension
- Certain education or medical benefits
- Tax-exempt allowances introduced by policy
What should you start putting in place as an employer?
This advice is purely good-natured advice for HRs, payroll teams, and employers who handle payroll. Here is a list of steps you can take to make the transition to this new regime easier.
1. Update payroll software
Ensure your software provider, if you use one, has the new tax tables added to your system. Salario has updated his systems to help all our clients stay automatically aligned with the new tax regime.
2. Recalculate PAYE for All Employees
Due to the changes in the new law, some allowances and perks are no longer accepted. Verifying relevant data and recalculating PAYE for all employees puts your business on the front foot as we enter the new year.
3. Review Employment Contracts.
Reviewing the contracts of your employees can help you spot blindspots, especially when it comes to apportioned benefits, which might not have been taxable under previous regimes but are now taxable. This will help you properly calculate their taxes to be remitted.
4. Update Payslips.
HRs should begin to update payslips to include the following if they were not included before:
- Gross pay
- Statutory deductions
- PAYE calculated by band
- Tax reliefs or exemptions
This will make for a more transparent administration of your employee affairs.
5. Communicate Changes With Staff
Not every member of your staff is aware of the changes and how they may affect their pay. No one likes seeing a reduction in their take-home pay, even when their salaries appear the same on paper. A company-wide email is an effective way to communicate the new tax bands and where employees fall within them. One-on-one communication is also essential when disparities arise due to the tax changes.
Conclusion
The new 2026 tax bands mark one of the biggest changes to Nigeria’s personal taxation in decades.
Whether you’re an employee planning your finances or an HR team preparing for compliance, understanding these bands will help you ascertain take-home pay more accurately, avoid penalties under the new tax administration, align payroll systems with the new nationwide structure, and communicate clearly and build trust with staff.
At Salario, we have provided a simple platform that takes care of these changes automatically. This means that the technical part of the HR’s work is sorted, and taxes can be remitted with ease. This frees up time for HR to deal directly with the human side of things. We have a Salario demo waiting for you to help you figure out how we can best help your business move forward with its HR and payroll.
FAQs
Will I pay more tax in 2026?
- If you earn below ₦800,000 annually, no.
- Middle earners may pay slightly less.
- High-income earners may pay slightly more.
Does this affect December bonuses?
Yes. Bonuses are taxable under PAYE. (But you are free this year.)
Do pension contributions still reduce taxable income?
Yes, the employee’s 8% contribution still reduces taxable pay.
Do I still need to file annual returns?
Employees in paid employment are generally covered under the employer’s PAYE process.
Will payslips change?
Yes. They must reflect the new band calculations for transparency.
