Take a higher earner on N12,000,000 a year with a monthly emolument of N800,000 and no NHF. The employee pension is 8% of N800,000, which is N64,000 a month or N768,000 a year of relief. Chargeable income then becomes N11,232,000. On the bands, the first N800,000 is free, the slice from N800,000 to N3,000,000 attracts 15% giving N330,000, and the slice from N3,000,000 to N11,232,000 attracts 18% giving N1,481,760, for total PAYE of N1,811,760. Net pay is N12,000,000 less PAYE less pension, which is N9,420,240 a year. The effective tax rate is 15.1%, since most of the income still sits in the 18% band rather than the higher 21% band that starts above N12,000,000.
Line
Annual (NGN)
Gross salary
12,000,000
Less pension (8%)
768,000
Chargeable income
11,232,000
Less PAYE
1,811,760
Net annual pay
9,420,240
Effective rate
15.1%
How it is calculated
A salary breakdown peels each deduction off gross pay in turn. The employee pension is 8% of monthly emolument, where emolument is basic plus housing plus transport, and NHF, if chosen, is 2.5% of basic salary. These reliefs lower the chargeable income that PAYE is charged on across the six progressive bands of the Nigeria Tax Act 2025. Net pay equals gross minus PAYE minus pension minus any NHF, and the effective rate is PAYE divided by gross, which always reads lower than the top marginal band because the early slices are taxed at 0% and 15%. Higher salaries push more income into the 18% and 21% bands, so the effective rate climbs gradually rather than jumping. Anyone on the national minimum wage or below pays no PAYE at all.
Frequently asked questions
How do I break down my Nigerian salary after tax?
Start from gross pay, subtract the employee pension of 8% of monthly emolument, subtract NHF at 2.5% of basic if you contribute, then apply PAYE on chargeable income after those reliefs. What remains is net pay. The effective tax rate is the PAYE divided by gross. Minimum-wage earners pay no PAYE at all.
What are the PAYE tax bands in Nigeria for 2026?
Under the Nigeria Tax Act 2025 the personal income tax bands start with a zero-rated band at the bottom covering the minimum wage, then 15% on income from around 800,000 naira, 18% on the next slice up to 12 million naira, and 21% on amounts above that. Because the first slice is taxed at zero and the relief for pension lowers chargeable income, the effective rate is always below the top marginal band. Confirm the exact thresholds with the FIRS before filing, as the reform revised several figures.
What is the difference between emolument and basic salary for pension purposes?
Emolument for pension purposes is the total of basic salary, housing allowance, and transport allowance. The employee pension contribution is 8% of this wider emolument figure, not just of basic. Basic salary is the narrower base used only for the NHF contribution at 2.5%. If you enter a monthly emolument equal to your basic plus your housing and transport allowances, the pension calculation will be correct.
Is the NHF contribution compulsory for all Nigerian employees?
Contributions to the National Housing Fund are compulsory for employees in the public sector and for private sector employees in companies with a workforce above a certain size. In practice, many private sector employers collect and remit NHF alongside pension. The benefit of contributing is eligibility to access a subsidised home loan from the Federal Mortgage Bank of Nigeria. If your employer does not deduct NHF, you can still contribute directly, but this calculator lets you toggle the deduction to model both cases.