How to Reduce Your PAYE by ₦50,000/Month (100% Legal)
Are you paying more PAYE tax than you should? Most Nigerian employees are.
The good news? You can legally reduce your PAYE by ₦30,000 - ₦50,000 per month using deductions and reliefs already available under the Nigeria Tax Act 2025.
In this guide, I'll show you 7 proven strategies that work for employees earning ₦200,000 - ₦1,000,000 per month.
Strategy #1: Maximize Your Pension Contributions
Potential Savings: ₦15,000 - ₦25,000/month
How It Works
Under Tax Act 2025, you can contribute up to 20% of your gross income to your pension (up from 8%).
Why this matters:
- Pension contributions are tax-deductible
- Reduces your taxable income
- Builds your retirement fund
Example Calculation
**Scenario: Monthly salary = ₦500,000
| Contribution | Taxable Income | Monthly Tax | Savings |
|---|---|---|---|
| 8% (₦40k) | ₦460,000 | ₦68,400 | - |
| 20% (₦100k) | ₦400,000 | ₦54,000 | ₦14,400** |
Action Step:
- Contact your HR department
- Request to increase pension to 20%
- Verify the change on your next payslip
Bonus: Your employer may match your contribution (free money!).
Strategy #2: Claim National Housing Fund (NHF) Deduction
Potential Savings: ₦3,000 - ₦7,500/month
What Is NHF?
The National Housing Fund is a 2.5% contribution from your basic salary that's now fully tax-deductible.
Example Calculation
Scenario: Basic salary = ₦400,000/month
- NHF contribution: ₦10,000/month (2.5%)
- Tax bracket: 21%
- Monthly tax savings: ₦2,100
- Annual savings: ₦25,200
Plus: You become eligible for low-interest housing loans (6% vs 20%+ commercial rates).
Action Step:
- Verify NHF is deducted from your salary
- Ensure it's reflected in your tax computation
- Keep contribution receipts for records
Strategy #3: Enroll in NHIS (National Health Insurance)
Potential Savings: ₦2,000 - ₦5,000/month
How It Works
NHIS contributions (typically 5% of basic salary) are tax-deductible.
Example Calculation
Scenario: Basic salary = ₦300,000/month
- NHIS contribution: ₦15,000/month (5%)
- Tax bracket: 19%
- Monthly tax savings: ₦2,850
- Annual savings: ₦34,200
Bonus Benefits:
- Free healthcare for you and 4 dependents
- No hospital bills for covered treatments
- Access to network of hospitals
Action Step:
- Register with an NHIS-approved HMO
- Submit enrollment form to HR
- Verify deduction appears on payslip
Strategy #4: Get Life Insurance Coverage
Potential Savings: ₦5,000 - ₦10,000/month
Tax Benefit
Life insurance premiums are deductible up to:
- 20% of gross income, OR
- ₦500,000 per year (whichever is lower)
Example Calculation
Scenario: Annual salary = ₦6,000,000
- Life insurance premium: ₦300,000/year (₦25,000/month)
- Tax bracket: 21%
- Annual tax savings: ₦63,000
- Monthly savings: ₦5,250
Bonus: Your family gets financial protection (₦5M - ₦50M coverage typical).
**Action Step:
- Get quotes from reputable insurers (AXA Mansard, Leadway, AIICO)
- Choose term life insurance (cheapest option)
- Submit premium receipts to HR for tax relief
Strategy #5: Optimize Your Salary Structure
Potential Savings: ₦10,000 - ₦20,000/month**
The Strategy
Restructure your salary to include **non-taxable allowances:
Taxable Components
- Basic salary
- Housing allowance
- Transport allowance
Non-Taxable Components (if properly structured)
- Meal vouchers
- Utility reimbursements
- Professional development allowances
- Remote work allowances
Example Restructuring
Before:**
- Basic: ₦400,000
- Housing: ₦100,000
- Total taxable: ₦500,000
- Monthly tax: ₦68,400
After:
- Basic: ₦300,000
- Housing: ₦80,000
- Meal vouchers: ₦50,000 (non-taxable)
- Utility reimbursement: ₦40,000 (non-taxable)
- Professional development: ₦30,000 (non-taxable)
- Total taxable: ₦380,000
- Monthly tax: ₦50,400
- Savings: ₦18,000/month
Important: This requires employer cooperation and proper documentation.
Action Step:
- Discuss with HR/Finance
- Ensure allowances are backed by receipts
- Document everything for FIRS compliance
Strategy #6: Claim Gratuity Exemption
Potential Savings: Varies (one-time)
How It Works
Gratuity payments are tax-exempt up to:
- ₦10,000,000, OR
- 20% of total emoluments (whichever is higher)
Example
Scenario: 10 years of service, annual salary ₦6M
- Total emoluments: ₦60,000,000
- 20% exemption: ₦12,000,000
- Gratuity received: ₦10,000,000
- Tax on gratuity: ₦0 (fully exempt)
- Tax saved: ~₦2,400,000
Action Step:
- Verify gratuity is structured correctly in your contract
- Ensure HR applies exemption when processing
Strategy #7: Use the Consolidated Relief Allowance (CRA)
Automatic Savings: ₦12,000 - ₦20,000/month
What Is CRA?
The CRA is an automatic tax-free allowance of:
- ₦800,000/year (₦66,667/month), OR
- 1% of gross income (whichever is higher)
Why It Matters
Under Tax Act 2025, CRA increased from ₦200,000 to ₦800,000.
Most employees automatically save ₦144,000/year (₦12,000/month) from this change alone.
Action Step:
- Verify your payslip shows ₦800,000 CRA (not old ₦200,000)
- If incorrect, alert HR immediately
Real-Life Example: Combining All Strategies
Let's see the total impact for someone earning ₦500,000/month:
Before Optimization
- Gross salary: ₦500,000/month
- Standard deductions only
- Monthly PAYE: ₦68,400
- **Annual tax: ₦820,800
After Optimization
- Pension increased to 20%: -₦14,400 tax
- NHF claimed: -₦2,100 tax
- NHIS enrolled: -₦2,850 tax
- Life insurance: -₦5,250 tax
- Salary restructured: -₦18,000 tax
- CRA verified: -₦12,000 tax (automatic)
New monthly PAYE: ₦13,800** Monthly savings: ₦54,600 Annual savings: ₦655,200
Important Warnings
What's Legal vs Illegal
Legal (Do This):
- Maximize pension contributions
- Claim all eligible reliefs
- Restructure salary with proper documentation
- Use approved deductions
Illegal (Don't Do This):
- Fake receipts or invoices
- Underreport income
- Claim non-existent dependents
- Bribe tax officials
**Penalty for tax evasion: Up to 3 years imprisonment + fines.
How to Get Started Today
Step 1: Calculate Your Current Tax
Use our PAYE Calculator to see what you're paying now.
Step 2: Identify Opportunities
Review the 7 strategies above and check which ones apply to you.
Step 3: Talk to HR
Schedule a meeting to discuss:
- Increasing pension contributions
- Verifying NHF/NHIS deductions
- Salary restructuring options
Step 4: Get Professional Help
For complex situations, consult a tax professional or use our AI Tax Assistant.
Step 5: Track Your Savings
Monitor your payslip monthly to ensure changes are applied correctly.
Quick Wins Checklist
Print this and take it to your HR department:
- Verify CRA is ₦800,000 (not ₦200,000)
- Increase pension contribution to 20%
- Confirm NHF deduction is applied
- Enroll in NHIS if not already
- Get life insurance quote
- Request salary restructuring discussion
- Keep all receipts for deductions
Frequently Asked Questions
Q: Will my employer allow me to increase pension to 20%?** A: Most employers will, as it's legal under Tax Act 2025. Some may match your contribution.
Q: Can I claim these deductions if I'm self-employed? A: Some apply (pension, NHIS, life insurance). Use our Self-Employment Calculator.
Q: How long does it take to see savings? A: Changes should reflect on your next payslip (within 1 month).
Q: What if my employer refuses to restructure my salary? A: Focus on strategies you control: pension, NHIS, life insurance, NHF.
Next Steps
Want to see your exact savings?
Use our free PAYE calculator to:
- Calculate your current tax
- See savings from each strategy
- Get personalized recommendations
Need personalized advice?
Chat with our AI tax assistant for:
- Answers to your specific situation
- Step-by-step implementation guide
- Compliance verification
Last Updated: January 20, 2025 Legal Disclaimer: This article provides general information. Tax laws are complex. Consult a qualified tax professional for advice specific to your situation.
Related Articles
- Nigeria Tax Act 2025: 10 Key Changes
- PAYE vs Self-Employment Tax: Which Saves More?
- Small Business Tax Calendar 2025