NHIS Contributions Are Tax-Deductible in Nigeria: What It Is Worth on a Real Salary

NHIS contributions are now recognised as eligible deductions when calculating an individual’s chargeable income under Nigeria’s tax framework. In practical terms, the contribution is removed from income before the applicable PAYE tax bands are applied.

The tax benefit is not a refund of the entire NHIS payment. Instead, the benefit is the PAYE tax avoided on the deductible amount. For an employee earning ₦500,000 monthly, the difference may be approximately ₦1,800 more in monthly take-home pay, depending on salary structure, NHIS contribution rate, pension, NHF, rent relief and other eligible deductions.

Last Updated: July 2026

What the law says about NHIS deductions

Section 30 of the Nigeria Tax Act, 2025 deals with the ascertainment of an individual’s chargeable income. Section 30(1) provides that chargeable income is the individual’s total income less eligible deductions.

Section 30(2)(a) identifies eligible deductions, including:

• Contributions under the National Housing Fund.
• Contributions under the National Health Insurance Scheme.
• Contributions under the Pension Reform Act.
• Interest on loans used to develop an owner-occupied residential house.
• Certain life insurance premiums and deferred annuity payments.
• Rent relief of 20% of annual rent paid, subject to a maximum of ₦500,000.

The Nigeria Revenue Service lists NHIS contributions among the deductions that can reduce chargeable income under Section 30. The deduction relates to the individual’s qualifying contribution rather than every healthcare-related expense paid personally.

This distinction matters because an NHIS or NHIA contribution is not the same as an ordinary hospital bill, cash medical allowance or every private medical expense. Payroll treatment depends on the nature of the payment, the supporting records and the applicable tax rules.

How NHIA contributions work

The National Health Insurance Authority replaced the former National Health Insurance Scheme structure under the National Health Insurance Authority Act, 2022. The Authority administers social health insurance programmes for Nigerians and legal residents.

For the formal-sector programme, the NHIA explains that the contribution may be structured as:

• An employer contribution of 10% of basic salary and an employee contribution of 5% of basic salary.
• An arrangement based on consolidated salary, where the employee share may be 1.75% and the employer share 3.25%, according to the NHIA’s FAQ.
• An employer-paid arrangement in which the employee does not bear the contribution directly.

The NHIA also states that the contribution covers the employee, a spouse and up to four biological children below 18 years, subject to the programme’s applicable conditions.

The exact percentage on a payslip can therefore differ between employers and schemes. A payroll calculation cannot safely assume that every employee pays exactly 5% of gross salary. The relevant base may be basic salary, consolidated salary or another approved contribution structure.

NHIS, NHIA and private HMO payments

The tax provision refers specifically to contributions under the National Health Insurance Scheme. The NHIA is now the statutory authority responsible for national health insurance administration.

A private HMO premium paid independently by an employee is not automatically identical to an NHIA contribution for payroll purposes. The treatment can depend on whether the payment falls within the statutory framework and whether the tax authority accepts the documentation.

For this reason, a payslip deduction labelled “HMO,” “medical,” or “health plan” does not by itself prove that the amount is an allowable Section 30 deduction. The employer’s payroll records and supporting evidence remain relevant.

What “tax-deductible” actually means

Suppose your annual salary is ₦6,000,000 and your qualifying NHIS contribution is ₦120,000. If the contribution is accepted as an eligible deduction:

[ \text{Chargeable income} = ₦6,000,000 - ₦120,000 ]

[ \text{Chargeable income} = ₦5,880,000 ]

The ₦120,000 does not disappear from your payslip. It is still paid into the health insurance programme. The tax effect is that PAYE is calculated on ₦5,880,000 instead of ₦6,000,000.

The value of the relief depends on the marginal tax band reached by the employee. If the deduction falls in an 18% band, the approximate tax saving on ₦120,000 is:

[ ₦120,000 \times 18% = ₦21,600 ]

That equals approximately ₦1,800 per month.

This is why a deductible contribution does not increase take-home pay by the full amount of the contribution. The employee still pays the contribution; the improvement comes from lower PAYE.

Nigeria’s individual tax bands

The Nigeria Tax Act, 2025 applies graduated rates to taxable income. The rates range from 0% to 25%. The published bands are as follows:

The first ₦800,000 is taxed at 0%, but that does not mean every employee pays no PAYE. Income above the threshold is taxed progressively across the relevant bands.

For example, an annual chargeable income of ₦6,000,000 is calculated as:

This produces an annual PAYE liability of ₦870,000, or ₦72,500 per month before considering the NHIS deduction.

Worked example: a ₦500,000 monthly salary

The following example isolates the NHIS effect. It excludes pension, NHF, rent relief, life insurance, mortgage interest, bonuses and other payroll items.

Salary assumptions

The assumed basic salary is 40% of gross salary only for this illustration. Actual employment contracts can use a different split between basic salary, housing allowance, transport allowance and other earnings.

Before NHIS deduction is recognised

Under this simplified comparison, annual taxable income is treated as ₦6,000,000.

The monthly take-home figure is:

[ ₦500,000 - ₦72,500 - ₦10,000 = ₦417,500 ]

After NHIS deduction is recognised

The annual NHIS contribution of ₦120,000 is deducted before the tax bands are applied.

The revised PAYE is calculated as follows:

The revised take-home figure is:

[ ₦500,000 - ₦70,700 - ₦10,000 = ₦419,300 ]

Before-and-after result

The employee still pays ₦10,000 monthly for NHIS. The practical value of the tax deduction in this example is ₦1,800 per month, or ₦21,600 per year.

Why the actual value can differ

The tax saving depends on where the deduction falls within the progressive tax bands.

These figures are illustrations rather than universal tax credits. A deduction may cross two tax bands, or part of it may fall within the 0% band. Pension contributions, NHF, rent relief and other eligible deductions can also change the final chargeable income.

An employee earning close to the ₦800,000 annual tax-free threshold may receive little or no additional PAYE reduction because the relevant income may already be taxed at 0%. At higher income levels, the same NHIS contribution can produce a larger tax reduction if it reduces income taxed at a higher marginal rate.

How payroll can reflect the deduction

For an employee, the calculation usually follows this sequence:

1. Add taxable employment income for the relevant pay period.
2. Identify qualifying employee deductions supported by payroll records.
3. Include the employee’s NHIS contribution among eligible deductions where the statutory conditions are met.
4. Calculate chargeable income under Section 30 of the Nigeria Tax Act, 2025.
5. Apply the graduated tax rates.
6. Deduct PAYE and other valid payroll deductions from gross pay.

The employer’s payroll system may calculate PAYE monthly and reconcile the figures across the year. A payslip can therefore show the NHIS payment as a separate deduction while also reflecting its tax effect through a lower PAYE amount.

The NRS has indicated that deductions are expected to be claimed in writing and supported by evidence, such as receipts or declarations. If the records are incomplete, the deduction may be challenged or disallowed.

Records that may support the calculation

Relevant payroll documentation can include:

• Employment contract showing salary components.
• Payslips identifying the NHIS or NHIA deduction.
• Employer remittance records.
• NHIA or approved programme enrolment records.
• Annual payroll reconciliation.
• Written employee declaration or claim where requested by the relevant tax authority.

The precise document list can depend on payroll policy and subsequent administrative guidance. The important point is that the amount deducted from salary needs to be identifiable and traceable.

Common mistakes in NHIS tax calculations

Treating the contribution as a tax refund

A tax deduction reduces the income on which PAYE is calculated. It does not return the entire NHIS payment to the employee.

Applying 5% to gross salary automatically

The NHIA’s formal-sector information refers to different contribution structures, including basic salary and consolidated salary arrangements. Applying 5% to gross pay without checking the salary structure can produce an incorrect result.

Deducting the employer’s contribution from employee income

An employer-paid NHIA contribution is different from an employee contribution withheld from salary. The employee’s own eligible payment is the amount relevant to the individual deduction calculation, subject to the law and supporting records.

Confusing NHIS contributions with all medical expenses

Section 30(2)(a) names contributions under the NHIS. A hospital bill, cash medical allowance or unrelated private treatment expense cannot automatically be inserted into the same deduction line.

Ignoring other eligible deductions

The NHIS calculation is only one part of PAYE. Pension contributions, NHF contributions, rent relief, qualifying insurance premiums and owner-occupied housing loan interest may also affect chargeable income when the statutory requirements are satisfied.

How to check a payslip calculation

A simple review can compare four figures:

• Monthly gross taxable income.
• Employee NHIS or NHIA contribution.
• Chargeable income after eligible deductions.
• PAYE deducted.

For the worked example, the expected NHIS deduction is ₦10,000 monthly, while the estimated PAYE reduction is ₦1,800 monthly. If the payslip shows the ₦10,000 deduction but PAYE remains unchanged, the employee can request a payroll explanation and provide the available contribution evidence.

This comparison does not replace an employer’s payroll computation. It is a way to identify the inputs used and locate a possible difference between the payslip and the statutory calculation.

Conclusion

NHIS contributions are listed as eligible deductions under Section 30(2)(a) of the Nigeria Tax Act, 2025. On a ₦500,000 monthly salary with an assumed ₦10,000 monthly NHIS contribution, recognising the deduction reduces estimated PAYE by ₦1,800 monthly and increases estimated take-home pay from ₦417,500 to ₦419,300, before pension, NHF and other deductions.

The exact result depends on the employee’s qualifying contribution, salary structure, tax band and supporting records. The NHIA’s published contribution information also shows that formal-sector arrangements can differ, so the percentage used in a calculation needs to match the applicable employment or scheme arrangement.

This article is for educational purposes only and does not constitute professional advice. Consult a qualified professional for your specific situation.

References

Section 30 of the Nigeria Tax Act, 2025 provides the statutory basis for calculating an individual’s chargeable income after eligible deductions, including NHIS contributions, pension, NHF, qualifying insurance payments and rent relief.

The Nigeria Revenue Service’s explanation of the Nigeria Tax Act identifies NHIS contributions as eligible deductions and notes the importance of written claims and supporting evidence.

The National Health Insurance Authority explains the formal-sector contribution arrangements, including the stated employer and employee percentages and the coverage structure for dependants.

The graduated personal income tax rates used in the example are reported from the Nigeria Tax Act, 2025 tax schedule and corroborated by professional tax summaries.