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 and freelancers across the country
- The law provides clarity on how salaries and side-hustles will be taxed, while also defining allowable deductions
- Taxable income includes salaries, bonuses, allowances, and benefits-in-kind like housing and vehicle benefits
On January 1, 2026, one of the most comprehensive reforms of Nigeria’s tax system is set to redefine how individuals and businesses are taxed.
There has been an 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 is misinformation and conflicting reports that have left many workers confused.
In this series, Legit.ng will provide some insights into the new law, offering context and clarifying the confusion surrounding the new taxes.
Nigeria's new tax law: impact on earners
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 who won't pay new tax
The new tax law exempts the income of workers earning the national minimum wage or less. Anyone earning below N800,000 yearly pays no tax.
Also, military officers’ wages and salaries are fully tax‑free.
Death gratuities as well as redundancy payments are also not subject to taxation.
What are taxes for Nigerian salary earners?
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's salary, allowances, bonuses, and even some benefits (like official housing or cars) are taxed.
What will not be taxed include meal vouchers, uniforms, and tools. Employers remove taxes monthly before paying workers' salaries.
Tax rates for individuals in Nigeria
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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.
Income Level | Gross Annual Income | Gross Monthly Salary | Tax Rate | Estimated Monthly Tax |
Tax-Free | Up to N800,000 | Up to N66,667 | 0% | N0 |
Entry Level | N800,000 – N2.99m | N67,000 – N249,000 | 15% | N50 – N27,400 |
Mid-Level | N3m – N11.99m | N250,000 – N995,000 | 18% | N27,500 – N161,800 |
Senior Level | N12m – N24.99m | N1m – N2.08m | 21% | N162,500 – N389,500 |
Executive Level | N25m – N49.99m | N2.09m – N4.16m | 23% | N391,000 – N868,200 |
Top Earners | Above N50m | From N4.17m | 25% | From N869,200 |
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 does the new tax law mean?
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, a 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.
"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."
Oyedele added 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 planned to debit individuals’ bank accounts for tax payments.
How to calculate salary tax in Nigeria
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.
Step 1: Calculate annual income
Add all taxable earnings:
- Basic salary
- Allowances
- Bonuses
- Any other payments
Step 2: Calculate deductions
These 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
To calculate the taxable income, take gross income minus deductions.
Step 4: Apply tax rates
Use the 2026 PAYE tax bands from lowest to highest.
Step 5: Divide annual tax
The annual tax should be divided by 12.
Example: For a worker earning N400,000 per 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
Step 6: 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
Thus, a worker earning N400,000 monthly would pay about N47,600 in income tax each month.
FG unveils four platforms for tax payments
Earlier, Legit.ng reported that paying taxes in Nigeria has been made simpler by the Federal Government.
Citizens can use four platforms to pay their taxes conveniently, with the process now digital and accessible.
Proofreading by Bruce Douglas, copy editor at Legit.ng.
Source: Legit.ng
