A tax assessment system called the Pay-As-You-Earn System was created to make it straightforward to collect taxes from taxpayers who are working. The Scheme is governed by the Pay-As-You-Earn (PAYE) Regulations, which were created in accordance with the provisions of the Personal Income Tax Act, as well as the Personal Income Tax Act.

According to the Act, if the competent tax authority demands it, every payment given to a person that is subject to income tax, regardless of whether an assessment has been made, shall be deducted from that payment.

We have previously shared how to file your Pay-As-You-Earn (PAYE) taxes for your employees in Rivers state, in this article, you will discover how to calculate the Pay-As-You-Earn (PAYE) taxes for employees in Rivers State. 

How is the Pay-As-You-Earn tax rate determined?

Based on the employee’s wages, the PAYE is computed and includes base pay, bonuses, fringe benefits, and other allowances. Even if you are paid weekly or fortnightly, your employer must calculate and pay PAYE to the Inland Revenue Service (IRS) on a monthly basis.

Your earnings are multiplied by 52 weeks, 26 weeks, or 12 months (depending on how frequently you are paid) when your employer calculates your PAYE. This yearly sum is then put into the IRS tax tables to determine your annual tax. To obtain the monthly PAYE tax that is withheld and paid to the IRS, this is divided once again by the same work period.

When determining your PAYE and paying the Inland Revenue Service, your employer will take into consideration any deductions or credits made for you by your employer when providing benefits like medical insurance, pension funds, income protection, and/or retirement annuity funds on your behalf.

Because of how the PAYE is determined, there are various circumstances when a taxpayer who has only worked a portion of a tax year may even be entitled to receive a tax refund.

How to calculate Pay-As-You-Earn (PAYE) taxes for employees in River state

Nigeria uses a standard way of calculating Pay-As-You-Earn tax across all its 36 states. The following are the steps for calculating Pay As You Earn tax:

The rates are computed differently if your income is greater than 300,000. Read on below:

Your tax rate on the first $300,000 of your income is 7%.

The following 300,000 pay 11% in taxes.

The next 500,000 are subject to a 15% tax.

The next 500,000 are subject to a 19% tax.

The subsequent $1,600,000 pay 21% in taxes.

Over $3,200,000 in income is subject to a 24% tax rate.

Your taxable income may be calculated using the formula above.

An example of a person whose gross income is 4 million naira in personal income tax is shown below. It is anticipated that the pension will be 7.5% of gross income in this case.

4, 000,000 in gross income (GI).

An amount of more than N200,000 or 1% of gross income is considered a consolidated relief allowance.

4,000,000 in gross income

Consolidated relief allowance: Amount exceeding N200,000 or one percent of gross income

800.000 Naira (20% of gross revenue).

N2, 500 per kid for children (maximum of 4) N10, 000

Dependent relatives: N2000 each (up to a maximum of 2) – N4,000

7.5 percent of gross income, or N300,000 to N1,314,000, is the pension.

N2, 686, 000 is the taxable amount.

PIT rate due on annual income

N 21, 000 for the first N 300,000 and 7%

The following N33, 000 (11% of N300,000)

Following N500 000, 5% N75 000

N75, 000 next, followed by N500, 000 15%

N95, 000 next N500, 000 19%

The following N1, 600,000 21% N228.6

Gross income: $4 million

PAYE: N452, 060

Therefore, this individual’s net income after deducting his/her Pay As You Earn tax is 3,547,940 million naira.