Is Income Taxes Payable a Debit or Credit?
Income taxes payable is a credit. Tax owed and not yet paid is a liability, so the account increases with a credit when the provision is recorded and decreases with a debit when the payment is made. Its normal balance is a credit, and it appears on the balance sheet of entities that pay tax at the entity level, mainly C corporations.
- Account category
- Liability
- Normal balance
- Credit (Cr)
- Increases with
- Increase (Cr)
- Decreases with
- Decrease (Dr)
- Financial statement
- Balance sheet
Classifying one account is easy. Ledger IQ classifies the whole trial balance.
Try it freeIncome taxes payable on a trial balance
| Acct # | Account | Debit | Credit |
|---|---|---|---|
| 1000 | Cash | 61,500.00 | |
| 1200 | Accounts receivable | 94,300.00 | |
| 1300 | Inventory | 68,000.00 | |
| 1500 | Equipment | 180,000.00 | |
| 1510 | Accumulated depreciation | 54,000.00 | |
| 2000 | Accounts payable | 38,700.00 | |
| 2250 | Income taxes payable (the account this page is about) | 14,600.00 | |
| 2400 | Notes payable | 110,000.00 | |
| 3000 | Common stock | 25,000.00 | |
| 3100 | Additional paid-in capital | 75,000.00 | |
| 3200 | Treasury stock | 30,000.00 | |
| 3900 | Retained earnings | 118,000.00 | |
| 3960 | Dividends paid | 40,000.00 | |
| 4000 | Sales revenue | 720,000.00 | |
| 5000 | Cost of goods sold | 398,000.00 | |
| 6000 | Salaries and wages | 164,000.00 | |
| 6300 | Depreciation expense | 27,000.00 | |
| 6700 | Income tax expense | 31,400.00 | |
| 6900 | Other operating expenses | 61,100.00 | |
| Total | 1,155,300.00 | 1,155,300.00 |
Example journal entries
| Account | Debit | Credit |
|---|---|---|
| Income tax expense | 31,400.00 | |
| Income taxes payable | 31,400.00 |
| Account | Debit | Credit |
|---|---|---|
| Income taxes payable | 16,800.00 | |
| Cash | 16,800.00 |
Why it works that way
A tax provision is an expense of the year that earned the income, and until it is paid the amount owed is a liability. The provision credits the liability and debits income tax expense. Payments, including estimates made during the year, debit the liability.
The liability at year end is the provision less the estimates and credits applied against it. A client who pays estimates and never records a provision shows a debit balance in the account, which is really a prepaid asset.
Whose balance sheet this belongs on
A C corporation pays tax itself, so it has a real federal income tax provision. S corporations and partnerships generally do not, because the income passes through to the owners. What those entities often do have is state level tax: franchise taxes, minimum taxes, composite or pass through entity taxes paid on behalf of owners.
So the account is not evidence of a problem on an 1120S or a 1065, but it is worth knowing which tax it holds, because the Schedule M-1 treatment differs.
Federal tax expense is not deductible
On Form 1120 the federal income tax provision is an addback on Schedule M-1. Book income is after tax; taxable income is before it. Forgetting the addback understates taxable income by the entire provision, and it is one of the few M-1 items the IRS can spot from the face of the return.
State income taxes are generally deductible for federal purposes, so they usually are not added back. Keeping state and federal in separate accounts rather than one lump makes that distinction mechanical instead of a reconstruction exercise.
Penalties and interest are different again
Penalties are never deductible. Interest on underpayments generally is not deductible for a corporation's federal income tax. Clients routinely post all of it to the same tax expense account, which means the M-1 addback is understated unless somebody separates it.
A tax expense account that is suspiciously round, or that includes the amount paid with last year's return rather than this year's provision, usually needs breaking apart before the return is prepared.
Where it fits in the accounting equation
Tax return treatment
| Form | Line |
|---|---|
| Form 1120 | Schedule L line 18, with the expense as a Schedule M-1 addback |
| Form 1120S | Schedule L line 18, usually state taxes only |
| Form 1065 | Schedule L line 17, usually state or local taxes only |
Common questions
Is income taxes payable a debit or credit?
A credit. It is a liability for tax owed and not yet paid. The provision credits it, and payments and estimates debit it. A debit balance means estimates exceed the provision, which is effectively a prepaid asset.
Do S corporations and partnerships have income taxes payable?
Usually only for state and local taxes, since the federal income passes through to the owners. State franchise, minimum or pass through entity taxes are the common ones, and they are generally deductible for federal purposes, unlike a corporate federal provision.
Why is federal income tax expense added back on Schedule M-1?
Because taxable income is computed before the federal income tax deduction, while book income is after it. The addback puts book income back on a pre tax basis. Missing it understates taxable income by the full provision.
Are tax penalties and interest deductible?
Penalties are not. Interest on a corporate federal income tax underpayment generally is not either. Both are frequently posted into the same tax expense account as the provision, so they need separating to get the Schedule M-1 addback right.
Related answers
Go deeper
This page is the short answer. These articles work through the same ground in detail.
Last reviewed October 17, 2026.