New Tax Law: All You Need to Know as Salary Earner Before January 2026
- Nigeria’s new Tax Act 2025 has introduced changes affecting workers, freelancers across the country
- The new law provides clarity to how salaries, side-hustle income will be taxed, while also defining allowable deductions
- Taxable income includes salaries, bonuses, allowances, and some benefits-in-kind (BIK), such as housing and car benefits
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From January 1, 2026, the new tax law will take effect, considered as one of the most comprehensive reform of Nigeria’s tax system which redefines how individuals and businesses are taxed.
There have been intense debate among Nigerians, especially the working class, over what the law means for their already stretched finances.
Source: Facebook
While the government insists that the reform only aims to broaden the tax base and simplify compliance, there are misinformation and conflicting reports that have left many workers confused.
In this series, Legit.ng will provide insights into the new law, offering context and clarifying the confusion surrounding the new taxes.
Salary earners what the new tax law say
Under Section 13 of the Act, employment income is taxable in Nigeria where:
- The employee is resident in Nigeria; or
- The employment duties are performed in Nigeria, and remuneration is paid by a Nigerian employer
- Non-resident employees
- Nigerian government employees abroad
- Seafarers
Salary earners that won't pay tax
The new tax law exempts the income of workers earning the national minimum wage or less.
Also, Military officers’ wages and salaries are fully tax‑free.
Death gratuities as well as redundancy payments are also not subject to taxation.
Anyone earning below N800,000 yearly pays no tax.
What are the taxes?
Taxable income includes salaries, bonuses, allowances, and some benefits-in-kind (BIK), such as housing and car benefits.
What this means is that a worker salary, allowances, bonuses, and even some benefits (like official housing or cars) are taxed. What will not be taxed include meals voucher, uniform, tools.
Employer remove taxes monthly before paying worker's salary.
Tax rates for Individuals
Employed workers are allowed several deductions before tax, including pension contributions, National Housing Fund, health insurance, interest on housing loans, life insurance, and rent relief of 20% (up to N500,000).
For those working independently, including, freelancers, consultants, artisans, content creators, and small
Allowable deductions include business expenses like shop rent, salaries, fuel, repairs, tools, internet/data, and R&D.
Non-allowable expenses include personal costs, capital expenditure, fines, unapproved pensions, and other exempt items
After deductions, each taxpayer’s annual income is taxed based on the following rate structure.
- 0% on the first N800,000
- 15% on the next N2.2 million
- 18% on the next N9 million
- 21% on the next N13 million
- 23% on the next N25 million
- 25% on any amount above N50 million
The Act also introduces presumptive taxation for freelancers and micro-businesses with insufficient records, allowing tax authorities to estimate taxes based on available information.
Individuals earning both a salary and business income must combine all sources of income including employment, business, investment, and rental income before applying deductions and tax bands
The more a worker earns, the more they pay tax.
Source: Getty Images
What the new tax law means in practice?
Workers see taxes deducted automatically by employers, while freelancers and business owners must maintain accurate records to calculate taxable profits.
Mixed earners should combine all incomes for a comprehensive assessment.
Kunle Ademola, Lagos-based tax consultant explained that the new law aims to simplify Nigeria’s tax system, unify rules across income types, and encourage proper documentation among businesses.
He said:
“The Act is progressive and ensures fairness across all income levels“It also provides clarity for freelancers and business owners who were previously unsure about obligations.
"Salary earners should verify payroll deductions, and self-employed individuals should maintain clear financial records to avoid penalties.”
Also, Taiwo Oyedele explained that individual taxes will be handled by the states, while company taxes will remain under the federal government.
He also debunked claims that the federal government plans to debit individuals’ bank accounts for tax payments.
Easy steps to calculate your tax as salary earner
Learning how to calculate tax on your salary in Nigeria is important for effective money management in 2026.
Here is an easy step to do it, although most of the time payroll officers handle this for salary earners
How to calculate your Salary tax in Nigeria (2026)
Step 1: Calculate annual Income
- Add all taxable earnings:
- Basic salary
- Allowances
- Bonuses
- Other payments
Step 2: Calculate Deductions
Include:
- Pension
- National Housing Fund (NHF)
- Life insurance or annuity
- Consolidated Relief Allowance (CRA = 20% of gross income + N200,000
Step 3: Find Taxable Income
Taxable Income = Gross Income – Deductions
Step 4: Apply Tax Rates
Use the 2026 PAYE tax bands from lowest to highest.
Step 5:
Divide annual tax by 12.
- Example: Worker Earning N400,000/Month
- Annual Gross Income: N400,000 × 12 = N4,800,000
- Pension (8%): N400,000 × 8% × 12 = N384,000
- CRA: 20% of N4,800,000 = N960,000 + N200,000 = N1,160,000
- Total Deductions: N384,000 + N1,160,000 = N1,544,000
- Taxable Income: N4,800,000 – N1,544,000 = N3,256,000
Apply Tax bands:
- First N300,000 is 7% = N21,000
- Next N300,000 is 11% = N33,000
- Next N500,000 is 15% = N75,000
- Next N500,000 is 19% = N95,000
- Remaining N1,656,000 is 21% = N347,760
- Total Annual PAYE: N571,760
- Monthly PAYE: N47,647
A worker earning N400,000 monthly would pay about N47,600 in income tax each month
FG unveils four platforms for easy tax payments
Earlier, Legit.ng reported that tax payment in Nigerian has been made easy by the federal government of Nigeria.
There are four platforms through which Nigerians can use to pay their taxes conveniently and without hassle.
The tax payment process is now digital, transparent and accessible to everyone.
Source: Legit.ng
