The Right Way On How to Calculate Your Tax in Nigeria (2026 Edition) - Learn How To Make Money Online With Simple Guides

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Understanding your tax obligations has always been a vital part of financial planning in Nigeria, but 2026 marks a historic shift. With the full implementation of the Nigeria Tax Act 2025, the landscape of Personal Income Tax (PIT) and Pay-As-You-Earn (PAYE) has been completely redesigned to be more progressive and supportive of low-to-middle-income earners.¹

Whether you are a salaried employee, a freelancer, or a business owner, knowing how these changes affect your take-home pay is crucial.² In this guide, we will break down the new tax rules and show you how to calculate your liability accurately.

1. The Core Changes in the 2026 Tax Law

The new tax regime simplifies the process by replacing some older, complex allowances with more direct reliefs. Here are the three pillars of the 2026 reform:

The ₦800,000 Tax-Free Threshold: The first ₦800,000 of your annual income is now entirely tax-free.³This provides immediate relief to millions of workers.
Replacement of Consolidated Relief Allowance (CRA): The old “one-size-fits-all” CRA has been replaced by more targeted reliefs, most notably the Rent Relief.⁴
Updated Tax Bands: Tax rates now range from 0% to 25%, structured to ensure that those who earn more contribute a fairer share while protecting the purchasing power of the average Nigerian.⁵

2. Step-by-Step: How to Calculate Your Taxable Income

To find out how much tax you owe, you don’t just look at your total salary. You must first determine your Chargeable Income by subtracting “allowable deductions” from your Gross Income.⁶

Step A: Identify Your Gross Income

This is your total earnings before any deductions. It includes your basic salary, housing, transport, and other allowances.⁷

Step B: Subtract Statutory Deductions

These are mandatory contributions that reduce your taxable amount:

Pension (8%): Based on your basic, housing, and transport allowances.
National Housing Fund (NHF) (2.5%): Calculated on your gross income.
National Health Insurance Scheme (NHIS): Contributions to the health insurance scheme.⁸
Life Assurance Premiums: Payments for life insurance for yourself or your spouse.⁹

Step C: Apply the New Rent Relief

A major highlight of the 2026 law is the Rent Relief.¹⁰ You can deduct a portion of your rent from your income before tax is applied.¹¹ The relief is calculated as:

20% of your annual rent, capped at a maximum of ₦500,000.¹²

3. Applying the 2026 Tax Rates

Once you have your Chargeable Income (Gross Income minus all deductions and reliefs), you apply the progressive tax bands.

Annual Chargeable Income Band	Tax Rate
First ₦800,000	0%
Next ₦2,200,000	15%
Next ₦9,000,000¹³	18%¹⁴
Next ₦13,000,000¹⁵	21%¹⁶
Next ₦25,000,000¹⁷	23%¹⁸
Above ₦50,000,000¹⁹	25%²⁰

4. A Practical Example

Let’s look at Ngozi, an employee in Lagos earning ₦5,000,000 annually. She pays ₦1,000,000 in rent and makes standard pension/NHF contributions.

Gross Income: ₦5,000,000
Statutory Deductions (Pension + NHF): ~₦525,000 (estimated)
Rent Relief: 20% of ₦1,000,000 = ₦200,000 (below the ₦500k cap).
Chargeable Income: ₦5,000,000 – ₦525,000 – ₦200,000 = ₦4,275,000.

Calculating the Tax:

First ₦800,000 @ 0% = ₦0²¹
Next ₦2,200,000 @ 15% = ₦330,000²²
Remaining (₦1,275,000) @ 18% = ₦229,500
Total Annual Tax: ₦559,500

5. Why Manual Calculation is Risky

As you can see, the math gets complicated quickly. Between calculating the exact 8% of specific salary components for pensions, ensuring you don’t exceed the ₦500,000 rent relief cap, and applying different percentages to different layers of your income, there is a high margin for error.

For employers, an error means non-compliance and potential fines. For employees, it means either losing money or owing the government a debt you didn’t plan for.

6. The Smart Solution: OgaTax Smart Calculator

How to Calculate Your Tax in Nigeria (2026 Edition)

To navigate these complexities with 100% accuracy, you need a tool built specifically for the Nigerian environment. We recommend using the OgaTax Smart Calculator.

Why use OgaTax?

Up-to-Date with 2026 Laws: It is pre-programmed with the latest Nigeria Tax Act 2025 schedules, including the ₦800k threshold and the new rent relief rules.
Instant Results: Simply plug in your gross pay and rent details, and it handles the heavy lifting in seconds.²³
Freelancer & SME Friendly: Whether you have a complex payslip or you’re a freelancer trying to set aside tax from a project fee, OgaTax provides clarity.
Compliance Guaranteed: It eliminates the guesswork, ensuring your PAYE filings are always accurate and on time.²⁴

Conclusion

Taxation in Nigeria is moving toward a system that is fairer and more transparent.²⁵ By understanding the new 2026 rules—especially the benefits of the ₦800,000 exemption and the rent relief—you can better manage your finances and ensure you are only paying what is legally required.

Don’t let the math overwhelm you. Visit www.ogatax.com today and use their smart calculator to get your precise tax breakdown in less than a minute.