Definition

Companies may find that they have liabilities to an agency or other organization with which it has had no direct transaction. This is known as third-party liability, and it can arise for various reasons.

Example

Suppose that a company, as a third party to transactions between its employees and the government, withholds income and social security taxes from paychecks.

Until those amounts are paid, the firm owes them to the government.

Similar arrangements exist for sales taxes collected from customers and other payroll withholdings for such things as union dues, payroll savings plans, charitable contributions, and insurance premiums.

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