Current Income Tax: Taxes Payable This Year

Key Takeaways

• Current tax is the legally owed amount on this year's taxable income, calculated using enacted rates.
• It differs from pre-tax book income because of temporary and permanent differences.
• Cash taxes paid in a year can lag current tax expense because of estimated payment timing.
• Reading current tax alongside deferred tax exposes how much of reported earnings is taxed now versus later.

What It Is

Under FASB ASC 740, total income tax expense in a period equals current tax plus deferred tax. The current portion is the amount payable or refundable on the current period's taxable income, applying the tax laws of each jurisdiction where the company operates.

Companies disclose the split in the tax footnote, usually as "current federal," "current state," and "current foreign." Many filers also reconcile their statutory rate to their effective rate, which exposes how items like foreign earnings, credits, and one-off settlements move tax expense.

The Intuition

Book income is what accountants record. Taxable income is what governments tax. The two rarely match.

Taxable income drops items like tax exempt interest, applies different depreciation schedules, and disallows part of executive compensation. The current tax line tells you what the company owes on its taxable income for this period under enacted rates.

Because cash payment schedules differ from accounting periods, current tax expense and cash taxes paid are close cousins but not identical. The cash flow statement reconciles them.

How It Works

The mechanics follow a simple structure:

Pre-tax book income
+/- Permanent differences (e.g. tax-exempt interest, fines, GILTI)
+/- Temporary differences (e.g. depreciation, warranty accruals)
= Taxable income
x Enacted statutory rate
- Credits (R&D, foreign tax)
= Current income tax expense

Permanent differences never reverse. Tax exempt municipal bond interest, for example, never becomes taxable. Temporary differences will reverse over time and drive deferred tax accounting.

ASC 740-10-25-3 requires that current tax expense be measured using tax laws and rates enacted at the balance sheet date. If a rate change is enacted later, the effect is recognized only in the period of enactment.

The current tax balance sheet item is "income taxes payable" or "income taxes receivable." Each quarter, current tax expense increases the payable; cash payments reduce it.

Worked Example

TaxCo reports $500 million of pre-tax book income in 2025. Adjustments to reach taxable income:

Pre-tax book income                          $500m
+ Stock comp not deductible                    +20
- Tax-exempt interest                          -10
+ Bonus depreciation reversal (timing)        -100
+ Warranty accrual not yet deductible          +30
= Taxable income                              $440m

Statutory rate                                 21%
Current federal tax                          $92.4m
+ State and foreign current tax              +18.0m
- R&D credit                                  -5.0m
= Current income tax expense                $105.4m

The temporary items (depreciation, warranty) reverse the depreciation impact later and generate deferred tax effects today. Permanent items (stock comp, tax exempt interest) only affect the current line and the effective rate.

If TaxCo paid $90 million in estimated taxes during 2025 and owes the rest in April 2026, cash taxes paid for the year on the cash flow statement is $90 million while current tax expense is $105.4 million. The $15.4 million gap sits in income taxes payable.

Common Mistakes

1. Treating current tax as cash taxes. They often differ. Estimated payment timing, refunds, and unrecognized tax benefits create gaps. Use the cash flow statement for actual taxes paid.
2. Ignoring permanent differences. A persistent gap between the statutory rate and the effective rate often comes from permanent items. The tax rate reconciliation in the footnote names them.
3. Mixing jurisdictions. Effective rates blend federal, state, and foreign. A foreign earnings mix shift can move the rate even with no domestic rate change.
4. Missing one-off items. Tax settlements, audit conclusions, and uncertain tax position releases can move current tax by hundreds of millions in a quarter. Adjust before annualizing.
5. Forgetting credits. R&D, foreign tax, and energy credits can drop the current line below the statutory rate. They are real cash savings but can phase out.

Frequently Asked Questions

What is current income tax in simple terms? It is the tax a company owes governments for the current year based on this year's taxable income. It is the closest income statement number to the actual tax bill.

How does current income tax affect investment decisions? A consistently low current tax versus deferred tax can signal aggressive timing differences that may unwind later. Compare current tax over five years to gauge cash tax intensity of the business.

What is a real-world example of current income tax? A US technology company with large foreign earnings reports a federal current tax line plus separate state and foreign current tax lines in its 10-K, often totaling well below 21% of pre-tax income because of credits.

How can investors avoid misreading current income tax effectively? Reconcile current tax to actual cash taxes paid in the cash flow statement and review the rate reconciliation. Persistent gaps point to timing differences or audit reserves worth understanding.

How is current income tax different from deferred income tax? Current tax reflects what is owed on this year's taxable income at enacted rates. Deferred tax reflects future tax consequences of temporary differences between book and tax bases.

Sources

1. Bloomberg Tax. How to Calculate the ASC 740 Tax Provision. https://pro.bloombergtax.com/insights/provision/how-to-calculate-the-asc-740-tax-provision/
2. KPMG. Accounting for Income Taxes Handbook (July 2024). https://kpmg.com/kpmg-us/content/dam/kpmg/frv/pdf/2024/accounting-for-income-taxes.pdf
3. Deloitte DART. 1.3 Objectives of ASC 740. https://dart.deloitte.com/USDART/home/codification/expenses/asc740-10/deloitte-s-roadmap-income-taxes/chapter-1-overview/1-3-objectives-asc-740
4. RSM. Accounting for Income Taxes, Current and Deferred Taxes (November 2025). https://rsmus.com/content/dam/rsm/insights/financial-reporting/1pdf/Accounting-for-income-taxes-Current-and-deferred-taxes.pdf

Disclaimer

This article is educational content only and is not financial advice. Nothing here is a recommendation to buy, sell, or hold any security. Consult a licensed advisor before making investment decisions.