Nigeria Tax Free Threshold Explained: ₦800,000 PAYE Relief

If you earn a modest salary in Nigeria, the biggest change to your payslip in 2026 is simple: the first ₦800,000 of your taxable income is now taxed at 0%. This guide to the Nigeria tax free threshold explained breaks down what that figure really means, how it is calculated, who qualifies, and how to check that your employer is applying it correctly. The short version is that many workers earning around ₦66,667 a month — and in some cases up to about ₦1.2 million a year in gross salary — now pay no PAYE at all.

What the tax-free threshold actually means

Under the personal income tax rules that took effect in January 2026, the first ₦800,000 of your taxable income each year attracts a 0% rate. Anything above that is taxed using the new graduated bands. According to Nairametrics, the monthly equivalent of that threshold is approximately ₦66,667.

The critical detail is that the threshold applies to taxable income, not to your gross salary. Before the ₦800,000 is applied, approved deductions such as pension, NHF, NHIS and rent relief are removed from your gross pay. That is why someone earning more than ₦66,667 a month can still pay zero tax — their taxable income may fall below the threshold even though their gross salary is higher.

Pension and health insurance contributions are not taxes. As a rejoinder published by The State House, Abuja, points out, a pension contribution is deferred wage held in your Retirement Savings Account and owned by you, while a tax is a compulsory payment to government with no direct ownership claim. Treating them as the same thing is one of the most common misunderstandings in these discussions.

How the new threshold compares to the old rules

Before 2026, only the first ₦300,000 of annual income was tax-free. From January 2026, the first ₦800,000 is exempt. According to Kuda Business, the tax-free threshold has effectively tripled.

The reform also fully exempts minimum wage earners from personal income tax, according to the National Association of Local Government Treasurers’ Fund (NALTF) summary of the 2026 framework. The NALTF describes the package as an end to the “taxation of poverty”, noting that 96% of income tax was previously paid by low income earners.

Item	Before 2026	From January 2026
Tax-free band	First ₦300,000	First ₦800,000
Monthly equivalent	About ₦25,000	About ₦66,667
Minimum wage earners	Taxed	Fully exempt
Effective zero-tax gross income	Lower	Up to about ₦1.2 million (with reliefs)

From gross salary to taxable income: the deductions that matter

Your taxable income is what remains after allowable deductions. According to Nairametrics, these include:

Pension: the employee’s 8% contribution to your Retirement Savings Account.
NHF: National Housing Fund contributions.
NHIS: National Health Insurance Scheme contributions.
Rent relief: a new 20% relief on annual rent, capped at ₦500,000.

Because these reliefs stack, the NALTF notes that individuals earning up to roughly ₦1.2 million gross annually can effectively pay zero tax. The exact figure depends on how much you actually contribute and what rent you pay.

Worked example: a ₦100,000 monthly salary

Take a worker earning ₦100,000 a month, or ₦1.2 million a year gross. Assume an 8% pension contribution of ₦8,000 a month (₦96,000 a year), NHF of ₦2,500 a month (₦30,000 a year) and NHIS of ₦1,500 a month (₦18,000 a year). Total deductions come to ₦144,000 a year, leaving taxable income of ₦1,056,000.

Now apply the threshold: the first ₦800,000 is taxed at 0%, leaving ₦256,000 to be taxed under the graduated bands. Even at a modest rate, the annual PAYE is small — and where rent relief is added, the taxable income can drop to or below ₦800,000, meaning zero PAYE. This is why the NALTF says gross incomes around ₦1.2 million can be effectively tax-free.

Who is exempt and who still pays

According to Businessday, personal income tax applies to all individuals who are tax residents in Nigeria and earn taxable income above the ₦800,000 annual exemption threshold. That includes salaried employees under PAYE, freelancers, self-employed persons, business owners, remote workers and informal earners.

In practice:

Salaried employees earning below the threshold after deductions pay nothing through PAYE.
Freelancers and self-employed persons above the threshold must file and pay, usually through their state internal revenue service.
Informal earners above the threshold are technically liable, though enforcement remains uneven.
Small businesses with turnover below the exemption limit are relieved under the reform, according to the NALTF.

Residents and non-residents are treated differently under the Nigeria Tax Act. Residents are taxed on worldwide income; non-residents are generally taxed only on Nigerian-source income. If your status is unclear, confirm with your state revenue service before assuming you are exempt.

How to calculate your PAYE in 2026

Start with gross pay. Add basic salary, allowances and any taxable benefits for the year.
Subtract allowable deductions. Pension (8%), NHF, NHIS and rent relief (20% of annual rent, capped at ₦500,000).
Arrive at taxable income. This is gross pay minus deductions.
Apply the 0% band. The first ₦800,000 of taxable income is tax-free.
Apply the graduated bands to the amount above ₦800,000.
Divide by 12 to get your monthly PAYE deduction.

Then check your January payslip. According to Businessday, early payroll data and HR managers report that January 2026 salaries already reflect reduced PAYE deductions for several formal sector workers.

Common mistakes and what to do if your employer over-deducts

The most common error is confusing gross salary with taxable income — assuming that because you earn above ₦66,667 a month you must pay tax. Another is failing to submit rent or NHF documentation to payroll, which means reliefs you are entitled to are never applied.

If you suspect over-deduction, take these steps:

Request a written PAYE breakdown from your employer’s payroll or HR unit.
Check that pension, NHF, NHIS and rent relief were applied.
Compare the taxable income figure against the ₦800,000 threshold.
Query the matter with your state internal revenue service, which administers PAYE for employees in that state.

Keep copies of your rent agreement, pension statement and NHF contributions — they are your evidence.

What the reform means for take-home pay and the economy

For formal sector workers, the immediate effect from January 2026 is higher net pay. The reform shifts the tax burden away from low earners towards higher bands and, in principle, a wider tax base. Whether that holds depends on enforcement and on subsequent finance acts. Watch for changes to the bands, the rent relief cap and small business thresholds in future legislation, since these will determine whether the reliefs keep pace with inflation.

Conclusion

The ₦800,000 threshold is generous on paper, but it only works for you if your deductions are properly documented and applied. Confirm your taxable income, submit your rent and NHF papers to payroll, and check your January payslip. If something looks wrong, query it early with your employer and your state internal revenue service.

Frequently Asked Questions

What is the tax-free threshold in Nigeria for 2026?

The first ₦800,000 of taxable income each year is taxed at 0% from January 2026, up from ₦300,000 previously — roughly ₦66,667 a month.

Do I pay tax if I earn ₦100,000 per month in Nigeria?

Probably little or nothing. After pension, NHF, NHIS and rent relief, a ₦100,000 monthly salary often leaves taxable income at or below ₦800,000, meaning zero PAYE.

How can I increase my tax-free income using pension, NHF and rent relief?

Make sure your 8% pension, NHF and NHIS contributions are deducted and documented, and submit proof of annual rent to payroll so the 20% rent relief (capped at ₦500,000) is applied.

What is the difference between gross salary and taxable income in Nigeria?

Gross salary is your total pay before deductions. Taxable income is what remains after allowable deductions — and it is taxable income, not gross salary, that the ₦800,000 threshold applies to.

Are minimum wage earners exempt from personal income tax in Nigeria?

Yes. According to the NALTF, individuals earning the national minimum wage are completely exempt from personal income tax under the 2026 framework.

Sources and further reading

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