What are Taxes Payable?

Taxes payable refers to one or more liability accounts that contain the current balance of taxes owed to government entities. Once these taxes are paid, they are removed from the taxes payable account with a debit. Many taxes payable are paid within a short period of time, and so do not remain on an organization’s balance sheet for long.

Examples of Taxes Payable

We provide several example of taxes payable, which are as follows:

Sales taxes payable. A business will likely need to withhold sales taxes from sales made to certain customers, for which the liability is recorded at the time a customer is invoiced, with a debit to the accounts receivable account. This liability is typically paid to the relevant government entity once a month.
Income taxes payable. A for-profit business will likely need to pay income taxes to the applicable federal and state governments, for which the liability is recorded at the end of each accounting period, with a debit to the income tax expense account - assuming there is a taxable profit.
Payroll taxes payable. An employer will need to withhold payroll taxes from employee pay and provide matching funds, for which the liability is recorded when a payroll is calculated, with a debit to one of several possible payroll expense accounts.
Property taxes payable. Businesses that own real estate must pay property taxes assessed by local governments, based on the value of the property. The expense is recognized over the period in which the property is used, even if the bill is paid annually. The unpaid portion is recorded as a liability under property taxes payable.
Excise taxes payable. Excise taxes are imposed on specific goods like fuel, alcohol, or tobacco, often included in the product’s price. Businesses collecting excise taxes are responsible for tracking and remitting them to tax authorities. Until payment is made, the amount owed is recorded as excise taxes payable.

Presentation of Taxes Payable

Taxes payable are almost always considered to be current liabilities (that is, to be paid within one year), and so are categorized within the current liabilities section of the balance sheet. The various taxes payable accounts may be aggregated into a single "taxes payable" line item in the balance sheet for presentation purposes.