Change in Tax Payable
Period-to-Period Movement in Current Tax Liabilities
Change in Tax Payable is the net increase or decrease in the company's current tax liability (primarily income taxes payable) during the reporting period. This line appears in the operating activities section of the indirect-method cash flow statement. An increase adds to operating cash flow (tax expense recognized but cash not yet paid), while a decrease subtracts (paying off prior tax accruals).
What It Really Means
Tax payable is the current income tax the company owes to governments based on taxable profit. Companies often pay estimated taxes quarterly, but the final liability is settled later.
When tax payable grows, you've booked more tax expense than you've paid in cash—keeping money longer, boosting operating cash flow. When it shrinks, you're catching up on past taxes—cash goes out.
A Clear Example
Company estimates and pays $8M in quarterly taxes, but final tax return shows $10M owed.
- Tax Payable rises by $2M
- Cash flow this year: +$2M Change in Tax Payable (add-back)
- Next year: Pay the $2M balance
- Next year cash flow: -$2M Change in Tax Payable
This year OCF gets a timing benefit; next year takes the cash hit.
Common Drivers
- Estimated payments vs. final liability
- Tax rate changes mid-year
- Loss carryforwards or credits applied
- Installment payment schedules
- Audit adjustments or prior year true-ups
Profitable growing companies often show increases.
How It Fits in Cash Flow
Indirect method operating section:
- Net Income (after tax expense)
- + Increase in Tax Payable (or − Decrease)
- = Closer to cash from operations
It's a working capital adjustment bridging accrual tax to cash tax.
What a Change Tells You
- Rising → conserving cash on taxes (OCF boost)
- Falling → paying down past taxes (cash outflow)
- Link to effective tax rate and profitability
- Timing of estimated payments
- Potential future cash tax burden
Compare to current tax expense for payment pattern.
Key Takeaways
Change in Tax Payable adjusts for timing of tax cash payments.
Increase adds to OCF (expense now, pay later).
Decrease subtracts (paying prior liability).
Driven by estimated vs. final tax and payment schedule.
Part of working capital changes.
Growth signals rising profitability or conservative payments.
Change in Tax Payable
Period-to-Period Movement in Current Tax Liabilities
Change in Tax Payable is the net increase or decrease in the company's current tax liability (primarily income taxes payable) during the reporting period. This line appears in the operating activities section of the indirect-method cash flow statement. An increase adds to operating cash flow (tax expense recognized but cash not yet paid), while a decrease subtracts (paying off prior tax accruals).
Table of Contents
What It Really Means
Tax payable is the current income tax the company owes to governments based on taxable profit. Companies often pay estimated taxes quarterly, but the final liability is settled later.
When tax payable grows, you've booked more tax expense than you've paid in cash—keeping money longer, boosting operating cash flow. When it shrinks, you're catching up on past taxes—cash goes out.
A Clear Example
Company estimates and pays $8M in quarterly taxes, but final tax return shows $10M owed.
- Tax Payable rises by $2M
- Cash flow this year: +$2M Change in Tax Payable (add-back)
- Next year: Pay the $2M balance
- Next year cash flow: -$2M Change in Tax Payable
This year OCF gets a timing benefit; next year takes the cash hit.
Common Drivers
- Estimated payments vs. final liability
- Tax rate changes mid-year
- Loss carryforwards or credits applied
- Installment payment schedules
- Audit adjustments or prior year true-ups
Profitable growing companies often show increases.
How It Fits in Cash Flow
Indirect method operating section:
- Net Income (after tax expense)
- + Increase in Tax Payable (or − Decrease)
- = Closer to cash from operations
It's a working capital adjustment bridging accrual tax to cash tax.
What a Change Tells You
- Rising → conserving cash on taxes (OCF boost)
- Falling → paying down past taxes (cash outflow)
- Link to effective tax rate and profitability
- Timing of estimated payments
- Potential future cash tax burden
Compare to current tax expense for payment pattern.
Key Takeaways
Change in Tax Payable adjusts for timing of tax cash payments.
Increase adds to OCF (expense now, pay later).
Decrease subtracts (paying prior liability).
Driven by estimated vs. final tax and payment schedule.
Part of working capital changes.
Growth signals rising profitability or conservative payments.
Related Terms
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