Income Taxes Payable
The financial accounting term income taxes payable is used to describe money owed to government authorities but not yet paid. Income taxes payable appears in the current liabilities section of the company’s balance sheet.
Income Taxes Payable = Income before Taxes x Tax Rate
Also referred to as taxes payable, this account documents the creation of a liability that is not yet paid to tax authorities. Accounting principles state that companies need to record the creation of the tax expense as it’s incurred, even though the money may not be payable in that same time period. This is referred to as the matching principle. Since income taxes are typically paid on a quarterly basis but reported annually, income taxes payable is classified as a current liability.
While the formula used to compute taxes payable appears to be quite simple; it’s often a complex calculation involving multiple tax rates, deductions and other adjustments such as deferred income taxes.