Final answer:
Federal income taxes withheld by an employer are recorded as current liabilities. This is because they represent funds collected from employees' wages that the employer must remit to the government, indicating an obligation or debt that the business has until the payment is made.
Step-by-step explanation:
Federal income taxes withheld by the employer on behalf of the employee are recorded as current liabilities. This is because these amounts are collected by the employer from the employee's wages and are owed to the government. They are not yet expenses for the employee or the business, nor are they considered unearned revenues or receivables.
The employer acts as a collection agent for the government, and these withheld taxes include advance payment on income tax, social security contributions, and various insurance payments. When employers withhold these amounts, they are collecting the government's money in trust until they remit it. Therefore, on the balance sheet, these withheld amounts are recorded as liabilities to reflect the obligation to pay this money to the government in the future.
To sum up, the tax withholdings represent an obligation or debt that must be paid, making them a liability until they are actually paid to the government.