what is tax liability

Tax liability refers to the amount of money an individual or entity owes in taxes to the government at the end of each tax year. It is the total amount of taxes that someone is responsible for or owes. Tax liability is calculated by comparing an individuals income to the deductions, exemptions, and credits for which they are eligible. The amount of tax liability depends on the individuals earnings and filing status. Deductions and credits can reduce the amount of income taxed and further reduce the amount owed. If an individuals income is low enough, they may not have any tax liability at all, and their standard deduction will exceed their taxable income, leaving them with nothing owed to the IRS. Tax liability is calculated per year, and it grows with each taxable event, such as earning income. Federal income tax liability is the amount owed in taxes to the federal government.