Hello Buddy,
Every month, the alert lands and you do the same ritual: glance at the number, sigh, and move on. But between your gross salary and that alert is a payslip — a document most Nigerian professionals have never actually read. And in 2026, with a brand-new tax law rewriting how your PAYE is calculated, not reading it is how you miss errors that quietly cost you money for years.
This is your line-by-line guide to that document — what each deduction means, what changed in January, and how to catch it when someone in payroll gets it wrong. Quick note before we start: tax rules change and everyone's situation differs, so treat this as a guide, not tax advice.
Gross vs Net: The First Shock
Your gross is not your money. The figure in your offer letter — say N500,000 monthly — is gross. What you can actually spend is net: gross minus PAYE tax, pension, and any other deductions. For many Nigerian earners the gap between the two is 10-20%, which is why the first salary always feels smaller than the dream.
Your payslip usually splits gross into components. Basic salary, housing allowance, transport allowance, and sometimes meal, utility or leave allowances. This split matters more than people realise: some deductions (like pension and NHF) are calculated on basic + housing + transport, not on the full gross. If your employer sets basic artificially low, your pension contributions shrink too.
The Deductions, Line by Line
PAYE (Pay As You Earn). This is personal income tax, deducted by your employer and remitted to your state's tax authority — LIRS if you work in Lagos, FCT-IRS in Abuja. It is calculated on your taxable income after reliefs, using progressive bands: the more you earn, the higher the rate on each additional band — from 0% on the first N800,000 of annual income up to 25% at the very top. We'll break down the 2026 changes below.
Pension (8% of your money, 10% of theirs). Under the Pension Reform Act, you contribute 8% of your basic + housing + transport, and your employer must add at least 10% on top. Both go into your Retirement Savings Account (RSA) with a Pension Fund Administrator — Stanbic IBTC Pension, ARM, Premium Pension and the rest. Important: the employer's 10% should never be deducted from your salary. If your payslip shows 18% coming out of your pay, someone is doing magic with your money.
NHF (National Housing Fund). 2.5% of your monthly basic salary, remitted to the Federal Mortgage Bank of Nigeria. In principle it qualifies you for a low-interest mortgage later; in practice many people forget it exists. It's still your money — keep your records.
HMO / health insurance. Many employers cover this fully; some split it with you. Check whether the deduction matches what HR promised, and confirm you're actually enrolled — discovering your HMO card doesn't work at 11pm in a hospital reception is not the vibe.
Other lines. Cooperative contributions, staff loans, union dues, gym or lunch deductions. Anything you didn't sign up for shouldn't be here.
The 2026 Tax Reform: What Changed in January
The Nigeria Tax Act 2025, signed in June 2025, took effect on 1 January 2026 and rewrote the personal income tax maths that had been in place for over a decade.
The first N800,000 of annual income is now tax-free. The old tax-free threshold was N300,000; it has effectively tripled. If your total annual income is N800,000 or less — roughly N66,000 a month — you should not be paying PAYE at all. Anyone earning around minimum wage (still N70,000 a month, pending the review unions are pushing for) pays little or nothing.
New progressive bands, topping out at 25%. After the tax-free N800,000, rates step up in bands — 15% on the next portion, then 18%, 21%, 23%, and finally 25% on annual income above N50 million. Middle-income earners generally pay slightly less than under the old regime; very high earners pay slightly more.
The Consolidated Relief Allowance (CRA) is gone. For years, payroll software started with "CRA: N200,000 plus 20% of gross." Delete that from your mental maths. It has been replaced by a rent relief: 20% of the annual rent you actually pay, capped at N500,000, if you claim it. If you see CRA still sitting on your 2026 payslip, your payroll team is running last year's formula — and your tax is probably wrong.
Gratuity is now taxable. Under the old rules, gratuity paid on exit was tax-exempt. The new Act brings it into the PAYE net. If you're negotiating an exit package this year, do that maths with the new rules in mind.
