Tax Liability
Definition
The total amount of tax you owe to a taxing authority for a given period. Your federal tax liability is calculated by applying tax rates to your taxable income, then subtracting credits. It is different from the amount you owe when you file: if your withholding and estimated payments exceed your liability, you get a refund. If they fall short, you owe the balance. Tax liability includes income tax, self-employment tax, AMT, and any additional taxes.
Example
Your taxable income results in $12,000 of federal income tax. After a $2,000 Child Tax Credit, your tax liability is $10,000. You had $11,000 withheld, so you receive a $1,000 refund.
Related Terms
Your adjusted gross income minus either the standard deduction or itemized deduc...
The amount of federal income tax your employer deducts from your paycheck and se...
A dollar-for-dollar reduction in the amount of tax you owe, more valuable than a...
Money returned to you by the IRS when you've paid more in taxes during the year ...