what is tax liability 
tax liability is the payment owed by an individual business or other entity to a federal state or local tax authority generally you have a tax liability when you earn income or generate profits by selling an investment or other asset it is possible to have no income tax liability if you don t meet the income requirements to file taxes investopedia nono floresunderstanding tax liabilityvarious authorities including federal state and local governments impose taxes and use the funds to pay for services such as repairing roads funding social programs and maintaining a military companies withhold income social security and medicare taxes from employees wages and send them to the federal government it s important to note that your tax liability doesn t just include the current year instead it factors in any years for which taxes are owed that means that if back taxes any unpaid taxes from previous years are due those are also added to your tax liability 