The Tax Rules Changed. Did Your Payroll System Change With Them?

For payroll teams, the change goes beyond replacing one tax rate with another. The calculation of an employee’s PAYE now follows a different structure, with specific provisions for taxable emoluments, eligible deductions, reliefs and the treatment of benefits in kind. The Joint Revenue Board’s 2026 Personal Income Tax Guidelines provide the framework employers are expected to use when operating PAYE.

That means a payroll spreadsheet, software configuration or internal formula built around the previous tax regime needs to be reviewed against the 2026 rules.

The 2026 PAYE calculation is different

Under the 2026 framework, taxable emoluments are determined after accounting for applicable reliefs and eligible deductions.

These rates apply progressively, meaning an employee does not pay the highest applicable rate on their entire income simply because their income reaches a particular tax band.

Read more on the progressive tax bands here : https://lessatax.ng/blog/how-nigerias-new-progressive-tax-bands-work-in-2026

The calculation also allows for specified eligible deductions, including pension contributions, NHF and NHIS contributions where applicable, qualifying life insurance premiums, interest on loans for developing an owner occupied residential house, and rent relief.

The 2026 guidelines provide for rent relief at 20% of annual rent paid, subject to a maximum of ₦500,000.

That distinction matters because payroll should be calculating tax from the employee’s relevant chargeable income, rather than simply applying a percentage to gross salary.

A simple example

Consider an employee with ₦3.6 million in annual chargeable income, after applicable deductions and reliefs have been accounted for.

The first ₦800,000 falls within the 0% band.

The next ₦2.2 million is taxed at 15%, producing ₦330,000.

The remaining ₦600,000 falls into the 18% band, producing ₦108,000.

The employee’s annual tax is therefore ₦438,000, equivalent to an average monthly PAYE deduction of ₦36,500 if spread evenly across the year.

The calculation demonstrates why payroll systems need to work through the bands progressively. Applying one rate to the entire ₦3.6 million would produce a different result.

For employees with deductions, reliefs, bonuses, benefits in kind or changes in income during the year, the calculation becomes more involved. The JRB guidelines provide for cumulative records of taxable emoluments and corresponding cumulative tax, which employers need to maintain as part of their PAYE records.

The payroll system needs more than the new tax bands

Updating the percentage table is only one part of the transition.

The 2026 guidelines require employers to keep records showing details including the month of payment, employee emoluments, taxable emoluments, cumulative taxable emoluments and corresponding cumulative tax.

The treatment of non cash compensation also needs attention. The guidelines define benefits in kind as non cash benefits, facilities or perquisites provided because of employment and provide valuation rules for different types of benefits.

This means a payroll review should cover the underlying calculation and employee data, rather than focusing only on the tax rate table.

PAYE deductions are also an employer responsibility

The 2026 guidelines require employers to deduct tax from employee emoluments and remit the amount to the relevant tax authority within ten days after the end of each month.

Employers are also required to maintain records of the deductions made. Failure to deduct or account for deductions can attract administrative penalties, while failure to remit deducted tax can result in liability for the unremitted amount together with applicable penalties and interest.

Accurate payroll calculations therefore have two sides: the employee needs the correct amount deducted, while the employer needs to correctly account for and remit the tax.

What employers should review

A 2026 payroll review should cover:

Tax bands and rates
Confirm that the payroll calculation uses the new progressive bands.

Chargeable income
Check that the calculation properly accounts for applicable reliefs and eligible deductions.

Employee benefits
Review how taxable benefits in kind are captured and valued.

Cumulative calculations
Confirm that taxable emoluments and PAYE are being tracked correctly throughout the year.

PAYE records
Ensure deductions and employee information are properly recorded.

Remittance
Check that PAYE deducted from employees is being remitted within the required timeframe.

The 2026 payroll deserves a proper review

The new tax framework has been in effect since January, and the Joint Revenue Board subsequently issued its 2026 Personal Income Tax Guidelines to provide further guidance on its application.

For employers, this makes payroll review a practical compliance exercise.

A spreadsheet created under the previous regime may still produce numbers. A payroll system may still process salaries without generating an obvious error. Neither tells you whether the underlying calculation reflects the rules that now apply.

The important question is whether the payroll formula, employee information, deductions, benefits and PAYE records have all been brought into line with the 2026 framework.

For employees, an accurate payroll calculation also matters. PAYE is deducted before salary reaches the employee’s account, so an error in the underlying calculation can affect what they receive every month.

The tax rules have changed. Payroll should reflect the change.

LessaTax helps businesses keep their income, expenses, invoices, receipts and other financial records organised, making it easier to maintain accurate information for tax compliance and reporting.