Nigeria’s new Tax Act, effective January 1, 2026, fundamentally changes how your income tax is defined, calculated and collected. Whether you’re a bank employee, software developer, nurse, civil servant, or creative freelancer, these changes will directly affect your paycheck and tax obligations.
We give a breakdown of what the law counts as income in today’s economy and how much of your earnings you’ll actually take home.
What Counts as Income Now?
The most significant change is how the law defines “income.” It’s no longer limited to just your basic salary or paycheck. Under the new Tax Act, income includes almost everything you receive that has monetary value, whether directly as money or indirectly as a benefit.
Your taxable income now includes:
- Wages, salaries and bonuses
- Allowances and honoraria
- Pensions and annuities
- Commissions from sales or services
- Any “benefit-in-kind” received from your employer
- Income from casual or part-time jobs
- Digital assets you sell
- Rewards like grants, awards, or job-related incentives
The law recognizes that modern workers don’t just earn traditional salaries, they also receive compensation in forms that didn’t exist twenty years ago.
How Much Income Tax You’ll Actually Pay
Now that you know what counts as income, the next big question is: how much tax will you actually pay under the new law? The Nigeria Tax Act, 2025 keeps the progressive or “graduated” structure of personal income tax, meaning the more you earn, the higher your tax rate. But it also allows important reliefs that reduce how much of your income is taxed. Here’s how it works in broad terms:
- Everyone gets a basic relief allowance of ₦200,000 or 1% of gross income, whichever is higher, plus 20% of gross income as a further deduction.
- You can also deduct payments made into pension schemes, National Housing Fund (NHF), life assurance premiums, and health insurance.
- After subtracting all these from your total earnings, the remaining amount, that is, your chargeable income, is what gets taxed.
The income tax bands under the 2025 law are:
| Taxable Annual Income (₦) | Tax Rate |
|---|---|
| First ₦300,000 | 7% |
| Next ₦300,000 | 11% |
| Next ₦500,000 | 15% |
| Next ₦500,000 | 19% |
| Next ₦1,600,000 | 21% |
| Above ₦3,200,000 | 24% |
To give a sense of proportion:
- A worker earning ₦2 million a year will generally fall into the 15–19% bracket, but effective tax after reliefs often comes out closer to 8–10%.
- Someone earning ₦4 million a year (around ₦333,000 monthly) will likely pay between 15–18% overall, after deductions.
- Those earning below ₦300,000 annually (₦25,000 monthly) usually pay no tax, as the reliefs wipe out all liability.
What this means is that most middle-income Nigerians, whether civil servants, teachers, or creatives, will pay an effective tax rate well below the headline 24%.
What’s Taxable and What’s Not
If you earn income, whether through formal or informal employment, you must pay taxes on your earnings. However, the government does not tax all your income the same way. Thus, understanding these distinctions can save you money.
Expenses vs. Income
The tax law specifically distinguishes between remuneration received for active service and payments for expenses incurred in performing your duties. If your employer reimburses you for petrol used on official errands or gives you a stipend for using your personal phone for work, you may not pay tax on those amounts, as long as they are not disguised as profit.
The key question to ask is whether you are being compensated for expenses you incurred while doing your job, or whether you are receiving extra income beyond your actual costs.
Benefits-in-Kind
The government now formally classifies many allowances that were once seen as minor perks as “benefits-in-kind.” These are non-cash benefits your employer provides and the new law specifies how to value and tax them.
Common taxable benefits include:
- Company vehicles (if used for personal errands)
- Housing provided by your employer
- Club memberships
- Expensive tools and gadgets for work
- Any accommodation where you don’t pay full market rent
What’s NOT taxable:
- Work uniforms, boots, and safety equipment
- Meals in a staff canteen
- Moving expenses for job relocations
- Tools and equipment used exclusively for work
Housing: A Special Case
Housing deserves particular attention. Therefore, if your employer provides you with accommodation or rents a house for you at less than the full market rent, tax law treats the difference as additional income. This “rental value” is added to your gross pay for tax purposes, although it is capped at 20% of your total employment income (excluding the rental value itself).
In cities like Lagos and Abuja where rents are high, this provision could significantly impact your tax bill.
Special Provisions for Modern Workers
Tech and Creative Professionals
The Nigeria Tax Act 2025 explicitly introduces exemptions for employees in startups and technology-driven services. If you work for a startup formally registered under the Nigeria Startup Act 2022, your employment income may not be taxed in Nigeria. But only provided you are a non-resident and your earnings are being taxed in your home country.
The law now formally recognizes creative workers under the category of “technology-driven services.” This category qualifies for specific exemptions and incentives, including reduced tax obligations for eligible companies. These benefits can also flow down to employees through lighter tax deductions on their earnings. By this, the government is clearly signalling its intention to support a 21st-century workforce.
International Workers
For employees who work for foreign governments, international organizations, or perform duties outside Nigeria, the law asks two critical questions:
- Where is the employee resident?
- Where are the duties of employment performed?
If you’re a Nigerian citizen working abroad, and that country has a diplomatic agreement with Nigeria to exempt your income from tax, then Nigeria will not tax it either.
Special cases:
- Seafarers: If you signed your employment articles in Nigeria or are in standby service on Nigerian vessels, your income is taxable here, even if you’re physically outside the country during voyages
- Civil servants and diplomats: Posted to international missions or serving in countries with reciprocal agreements, your income is taxable in Nigeria so long as the host country doesn’t tax it
- Nigerians working for foreign companies: If you work from within Nigeria, your income is taxed here, unless your employer is a startup or operates in tech/creative sectors and the income is taxed in your country of residence
Disability Considerations
The Act includes provisions for people living with disabilities and allows deductions for assistive devices such as wheelchairs and hearing aids. This reflects Nigeria’s broader social inclusion goals and ensures tax policy doesn’t penalize those who need additional support.
How Taxpal Can Help
Navigating Nigeria’s new income tax landscape doesn’t have to be overwhelming. Taxpal is a comprehensive tax management platform designed to simplify tax processes for individuals, corporations, and payroll companies. The Taxpal platform offers:
- Automated solutions for income classification and tax calculation
- Expert guidance on complex employment tax matters
- Personalized support tailored to your profession and situation
- Digital tools for seamless tax management and compliance
To get started, visit their website and choose the option that suits you best, whether it’s an in-person consultation or portal access. Let them help you understand exactly how the new tax law affects your income and ensure you’re taking advantage of all available exemptions and reliefs.
