Federal income tax liability is the amount of tax that an individual or business owes to the federal government on their annual earned income. It is the total amount of taxes that an individual or entity is responsible for paying to the government. Tax liabilities can be calculated per year, and they are usually calculated when filing taxes at the beginning of each year from January to April for the previous year. Tax liabilities can be imposed by various taxing authorities, including federal, state, and local governments.
It is possible to have no federal income tax liability if an individual or business does not meet the income requirements to file taxes. Deductions, exemptions, and tax credits can be claimed to lower tax liabilities. Business tax liabilities are considered short-term liabilities and are kept in a special section on their balance sheet.
Calculating tax liability depends on the entity type and taxable income. For individuals who are employed, it is usually a simple matter of consulting the tax tables. For businesses, the tax rate depends on the entity type. C corporations are taxed twice, at both the corporate and shareholder levels, and their income tax rate is a flat 21% . For non-C corporations, the tax rate depends on the taxable income and filing status. The taxable income minus tax deductions equals the gross tax liability, and the gross tax liability minus any tax credits equals the total income tax liability.
