Most people question the difference between Personal Income Tax and PAYE, and when they find out the difference, the next question that comes to mind is how to calculate Pay-As-You-Earn (PAYE) taxes to pay on behalf of my employees in my location. 

In this article, you will find a detailed explanation of Personal Income Tax and Pay-as-you-earn tax, and how to calculate Pay-As-You-Earn (PAYE) taxes for employees in Edo State.

What is Pay As You Earn, or PAYE tax?

Individuals who either work for a living or own their own businesses must pay personal income tax on their earnings. The Personal Income Tax (PIT), which consists of Pay-As-You-Earn (PAYE) for wage earners and direct assessment for self-employed businesses, has drawn numerous inquiries from taxpayers around the country, as is the case with many other tax types.

Therefore, PAYE tax, also known as pay-as-you-earn tax, is a type of personal income tax. 

The Pay-As-You-Earn (PAYE) system is used to tax people who are working. The employer is considered to be an unpaid agent of the Tax Authority under the program and is therefore required to withhold taxes from salaries, wages, bonuses, allowances, and benefits in kind.

The system makes sure that the Internally Generated Revenue account for the appropriate tax authority receives the monthly tax deducted from employee salaries and compensation.

According to Regulation 1 of the Operation Pay-As-You-Earn (PAYE) regulations, “An employer shall register with the relevant tax authority for the purposes of deducting income from his employees with or without formal notification or direction by the relevant tax authority.” All employers of labour are required to do so in order to deduct and remit PAYE tax from the employee’s pay.

Rates of  Pay-As-You-Earn (PAYE) taxes for employees in Edo State 

If you’ve read this far, how much precisely this Pay As You Earn (PAYE) is presumably on your mind? It depends, really. Nigeria uses a PAYE system with a graduated scale. The tax rate rises based on the employee’s annual taxable income. The Edo State Inland Revenue Service also uses the same scale for Pay-As-You-Earn (PAYE) taxes for employees in Edo State. 

The following rates will be applied for Pay-As-You-Earn (PAYE) taxes for employees in Edo State : 

• 7% for the first N300,000; 
• 11% for the next N300,000; 
• 15% for the next N500,000; 
• 19% for the next N500,000; 
• 21% for the next N1,600,000; 
• 24% for amounts beyond N3,200,000.

If an employee’s yearly taxable income is less than N300,000, then 1% of that amount will be taxed.

For example, for an employee that earns 10 million per year, not all of the N10 million would be taxed at the maximum of 24%, but rather the first N300,000 of the N19 million would be taxed at 7%, the next N300,000 of the remaining N9.7 million will be taxed at 11%, the next N500,000 of the remaining N9.4 million will be taxed at 15% and so on until the maximum threshold is reached.

Note: PAYE does not differ because the rates used for computation in every state in Nigeria are the same. 

The deadline for filing Pay-As-You-Earn (PAYE) taxes for employees in Edo State 

Every company is expected to withhold PAYE tax from workers’ salaries each month and send the tax to the appropriate tax authorities through pre-designated banks. The deadline for filing Pay-As-You-Earn (PAYE) taxes for employees in Edo State is ten (10) days into the next month.

An employer must submit two PAYE tax returns each year on behalf of an employee. Both Form H1 and Form A apply. An annual employer’s tax return is another term for the Form H1 return. It lists the names, yearly gross income, and PAYE taxes paid by each employee during the previous tax year. A taxpayer often submits Form G together with Form H1.

The yearly PAYE tax paid and the related revenues are detailed on Form G. Form H1 must be submitted by January 31st of the following year. Form A, on the other hand, is a form used to declare an individual’s income annually and to make claims for allowances and relief. Form A must be filed by March 31st of the current year.

In conclusion, there are consequences for failing to pay Pay-As-You-Earn (PAYE) taxes for employees in Edo State. Each defaulter is fined a penalty of N5000.00 (five thousand naira). Therefore, it is important to pay your Pay-As-you-Earn tax before or when due.