Payroll Liability
Definition
A payroll liability is money withheld from employees or owed by the employer for payroll taxes that has not yet been paid to the tax agency. It is a current liability.
Example
Gross wages are $5,000. Employee tax withholdings are $1,000 and employer payroll taxes are $450. Until these amounts are sent to the tax agency, $1,450 is a payroll liability.
Why It Matters
Payroll liabilities must be tracked and remitted on time. Recording them correctly prevents overstating cash and ensures the business pays what it owes.