How to perform payroll tax reconciliation

What is payroll tax reconciliation? 

A payroll tax reconciliation checks whether the PAYE tax calculated corresponds with the actual amount payable. A regular reconciliation lowers payroll tax exposure. An employer can carry out a reconciliation exercise quarterly, bi-annually, or annually.

As payroll data provides the input for payroll tax, it is crucial to check the completeness and accuracy of the payroll data first before reconciling taxes.


A review of the Pay-As-You-Earn (PAYE) tax computation usually involves the following steps;

  1. Collate the monthly payroll, one-off payments, and any other compensation data. The report will be from January to December.
  2. Compare the total amount on the PAYE tax receipts with the figure calculated tax. Reconcile any difference.
  3. Annualize the monthly income and tax paid of each employee
  4. Calculate the annual PAYE tax based on the relevant law.
  5. Compare the tax calculated with the amount paid. 
  6. If there is a tax payable, remit the balance to the relevant tax authority (RTA). 

Importance of reconciling payroll tax

An employer or a person in a management capacity is responsible for deducting and remitting PAYE taxes in Nigeria. Employers must file an annual employer tax return (Form H1) showing the income and taxes of employees. A timely reconciliation reduces the stress in the tax filing process, lessens the tax exposure, and helps identify any gaps in the payroll report.

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