Are payroll withholding taxes an expense or a liability?

Definition of Payroll Withholding Taxes

Payroll withholding taxes are amounts withheld from employees' wages and salaries. The amounts withheld are actually the employees' money that the employer is required by law to withhold and remit to the government. In other words, the employer is acting as an agent by withholding and remitting the employees' money.

Examples of Payroll Withholding Taxes

The payroll taxes withheld from employees include federal income taxes, state income taxes, and the employees' portion of the FICA or Social Security and Medicare taxes.

Payroll Withholdings are Liabilities

The payroll taxes withheld from employees are a current liability of the employer until the amounts are remitted to the governments. (The taxes withheld from employees are not an expense of the company that withheld them.)

The payroll taxes that are not withheld from employees are expenses of the employer and are liabilities until the amounts are remitted. Examples include the employer's portion of the FICA tax and unemployment taxes.

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