what is tax liabilities Tax liability is the sum of tax that an individual or company must pay to the state. This is inclusive of federal, state and even local taxes. It is determined out of revenues, profits of the business, and investments among other taxable activities. Among the common tax obligations that individuals have to bring about is the federal income tax, the Social Security and Medicare taxes. In the case of business, it might comprise of corporate tax, employment tax and sales tax. Knowledge of the meaning of tax liability contributes to proper planning of finances and execution of tax liability within due and legal time.