Again, there is an important distinction:
A deduction from your salary is not necessarily an additional tax.
Where the law recognises the deduction in determining chargeable income, it may reduce the amount of income on which your tax is calculated.
Employees should therefore check their payslips and relevant remittance records to ensure that deductions described as NHF are properly accounted for.
4. Health Insurance Contributions
Qualifying contributions under the National Health Insurance Scheme and applicable health-insurance arrangements may also be relevant to an employee’s tax computation.
The NTA expressly recognises qualifying contributions under the National Health Insurance Scheme among eligible deductions.
This is another reason employees should not automatically assume:
“Everything deducted from my salary makes me poorer.”
Some deductions may provide a current or future financial benefit and may also receive tax recognition.
5. What About NSITF?
Here is another area where employees should pay attention.
The Nigeria Social Insurance Trust Fund (NSITF) contribution is generally an employer obligation, rather than a deduction from the employee’s salary.
Therefore, if an employee sees a deduction described as NSITF on a payslip, it is reasonable to ask the employer or payroll department to explain the basis for that deduction.
This distinction matters because:
An employer’s statutory contribution should not automatically be converted into an employee’s deduction.
Employees should understand the difference between what their employer is required to pay on their behalf and what is lawfully deducted from their salary.
6. Loan Repayments
Now we enter the world of non-tax deductions.
Suppose Chinedu obtained a staff loan from his employer.
His payslip may show:
Staff Loan Repayment — N100,000
That is a deduction from his salary.
But it is not PAYE.
It is repayment of money he previously borrowed.
This distinction is crucial.
A payslip may therefore contain deductions that have absolutely nothing to do with taxation.
7. Cooperative Contributions
Many Nigerian workers belong to cooperative societies.
A monthly deduction may therefore appear as:
Cooperative — N20,000
Again, this is not PAYE.
It may represent the employee’s contribution to a cooperative society or savings scheme, subject to the relevant authorisation given by the employer.
The employee should know whether the deduction is mandatory, voluntary or based on an agreement.
8. Union Dues
Where applicable and properly authorised, trade union dues may also appear on a payslip.
Again:
Union dues are not PAYE.
They are a separate deduction with a different legal and institutional basis.
9. Salary Advances
Sometimes an employee receives part of his or her salary in advance.
The subsequent repayment may appear as:
Salary Advance — N50,000
This reduces take-home pay but does not represent income tax.
10. Insurance and Other Voluntary Deductions
An employee may authorise deductions for:
life insurance;
health insurance;
professional subscriptions;
savings schemes;
cooperative investments;
employee welfare schemes;
charitable contributions; or
other approved workplace programmes.
These deductions should not automatically be confused with statutory taxes.
The golden rule is to ask: “Why is this money being deducted, and where is it going?”
Statutory Versus Non-Statutory Deductions
Let’s make this very simple.
Deduction
What it generally represents
PAYE
Personal income tax deducted through payroll
Employee pension contribution
Retirement savings under applicable pension arrangements
NHF
Housing fund contribution where applicable
Qualifying health insurance/NHIS contribution
Health insurance contribution
Loan repayment
Repayment of money borrowed
Salary advance
Recovery of salary paid in advance
Cooperative contribution
Employee savings/investment arrangement
Union dues
Trade union contribution where applicable
Insurance contribution
Insurance arrangement
Other authorised deductions
Depends on the employment arrangement
The crucial point is that the existence of a deduction on your payslip does not make it a tax deduction for PAYE purposes.
Tax treatment depends on what the law specifically allows.
An Important Tax Secret: Some Deductions Can Reduce Your Tax
This is perhaps the most important lesson for Nigerian workers.
The Nigeria Tax Act provides for certain eligible deductions when determining an individual’s chargeable income.
These include qualifying:
National Housing Fund contributions;
National Health Insurance Scheme contributions;
pension contributions;
interest on loans for developing an owner-occupied residential house;
certain life assurance premiums or deferred annuity payments; and
rent relief of 20% of annual rent paid, subject to a maximum of N500,000 and the statutory conditions.
But there is an important distinction:
Rent relief is not the same thing as a monthly payslip deduction.
You do not necessarily see “Rent Relief” deducted from your salary every month.
Rather, it is a statutory deduction used in determining chargeable income, subject to the conditions and claim requirements under the NTA.
This is precisely why tax education matters.
Your Payslip Is a Conversation With Your Employer
Imagine that your payslip shows:
Gross Earnings:N500,000
PAYE: N35,000
Pension: N40,000
Cooperative: N20,000
Loan Repayment: N50,000
Your net salary will obviously be substantially lower than your gross salary.
But these deductions do not all mean the same thing.
N35,000 may represent your tax liability.
N40,000 may be retirement savings.
N20,000 may be your cooperative contribution.
N50,000 may be repayment of money you borrowed.
If you simply look at the final amount credited to your account, you miss the story.
Your payslip tells that story.
Why Employees Should Check Their Payslips Every Month
Your payslip can help you answer five important questions:
1. Did I receive the salary I was supposed to receive?
2. Was my PAYE correctly calculated?
3. Were my pension and other statutory contributions correctly deducted and remitted?
4. Did my employer make any deduction that I do not understand or did not authorise?
5. Does my payslip accurately reflect my financial records?
The post Your payslip explained! By Abimbola Abdur-rahman Lekki appeared first on Vanguard News.