Deferred Tax Liability (DTL)

Category

Balance Sheet

Units

Currency

US-GAAP elements

DeferredIncomeTaxLiabilitiesNetDeferredTaxLiabilitiesNoncurrentDeferredIncomeTaxLiabilitiesDeferredTaxLiabilitiesPropertyPlantAndEquipment

Reference

Regulation S-X Rule 5-02.26 (Deferred credits); ASC 740

Source

Reported in SEC EDGAR filings (US-GAAP XBRL taxonomy)

A deferred tax liability (DTL) is income tax a company expects to pay in future years on income it has already recognized in its financial statements but has not yet reported on its tax returns. Deferred tax liabilities arise from temporary differences, where an item hits book income earlier, or tax deductions come earlier, than the other way round.

The most common source is depreciation. Tax rules often allow faster depreciation than the straight-line method used in financial reports, so taxable income runs below book income in an asset's early years. The tax saved now is expected to reverse later, and the liability records that future payment.

Deferred taxes are measured under ASC 740 using the enacted tax rates expected to apply when the differences reverse. When tax law changes, companies remeasure the balance and run the effect through income tax expense. Since ASU 2015-17, all deferred tax balances are classified as noncurrent on a classified balance sheet. Within a single tax jurisdiction, a company offsets its deferred tax liabilities and assets and presents one net figure; balances from different jurisdictions are not netted against each other.

In XBRL filings the balance-sheet amount is tagged DeferredIncomeTaxLiabilitiesNet, which is already net of deferred tax assets in the same jurisdiction; older filings used DeferredTaxLiabilitiesNoncurrent, an element no longer in the current US-GAAP taxonomy. The tax footnote reports gross deferred tax liabilities before any netting, tagged DeferredIncomeTaxLiabilities, and breaks them out by source, such as DeferredTaxLiabilitiesPropertyPlantAndEquipment. Regulation S-X Rule 5-02.26 requires deferred income taxes to be shown separately among deferred credits on the balance sheet.

Analysts treat deferred tax liabilities with care. A growing company that keeps investing in equipment may see the liability roll forward for many years without ever being paid, which makes it act more like permanent financing than debt. For that reason many analysts leave it out of debt calculations, while others treat part of it as equity. The breakdown in the tax footnote shows what is driving the balance and how quickly it could reverse.