Employment Taxes
- Withholding Taxes
- Social Security and Medicare Taxes
- Employer's Payroll Tax Liability
- State Employment Taxes
- Depositing Payroll Taxes
- Accuracy of Deposit Rule
- Employment Tax Payments With Return
- Federal Unemployment Tax (FUTA)
- Advance Earned Income Credit Payments
- Non-Employee Withholding Taxes
- Reporting Employment Taxes
- Household Employees
- Employment Tax Deposit Penalties
- Trust Fund Recovery Penalty
- Delinquent Employment Taxes
- Using a Payroll Service
More Tax Topics
- Business Structures
- Start-up Costs
- Depreciation
- Car Expenses
- Home Office Deduction
- Travel Expenses
- Hiring Workers
- Meals and Entertainment
- Retirement
- Top Tax Myths
- Per Diem Rates - IRS Publication 1542 Oct 2011 for Travel Within the Continental U.S (for employers who pay a per diem allowance to employees)
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Trust Fund Recovery Penalty
What Are Trust Fund Taxes?
Trust fund taxes are taxes an employer is required to withhold from an employee's pay and turn over to the government (the U.S. Treasury).
Trust fund taxes include:
- Federal income taxes withheld from each employee's pay
- The employee's share of social security and Medicare taxes withheld.
If these taxes are not withheld, or, if they are withheld but not remitted to the United States Treasury, the trust fund recovery penalty may apply.
How the Trust Fund Recovery Penalty is Assessed
The Trust Fund Recovery Penalty Equals:
- The full amount of:
- Federal income taxes you were required to withhold, plus
- Each employee's share of social security and Medicare taxes you were required to withhold
Who is Responsible For the Trust Fund Recovery Penalty?
The trust fund recovery penalty may be imposed on all persons who are determined by the IRS to have acted willfully in not carrying out their responsibility for:
- Collecting
- Accounting for, and
- Paying these taxes to the United States Treasury.
Willfully means voluntarily, consciously, and intentionally. A responsible person acts willfully if he/she knows that the required actions are not taking place.
The IRS takes non compliance with the rules for handling trust fund taxes seriously.
Consequently, it can go beyond just the owners of a company in assigning liability, other individuals within the organization may also find themselves liable for trust fund taxes.
For example, the following may be held liable:
- An officer or employee of a corporation
- A partner or employee of a partnership
- An accountant
- A volunteer director/trustee
- An employee of a sole proprietorship
- A responsible person may also include one who signs checks for the business or otherwise has authority to cause the spending of business funds.
Bankruptcy: Filing bankruptcy will not discharge trust fund taxes.
Related Links
- What Are Payroll Withholding Taxes
- Who Pays Social Security and Medicare Taxes?
- Social Security and Medicare Tax Rates
- Wage Base for Social Security Taxes
- Employer's Liability for Employment Taxes
- State Income Taxes
- State Unemployment Taxes (SUTA)
- Employer's SUTA Experience Rate
- Unemployment Insurance Claims
- Depositing Employment-Related Taxes
- Nonpayroll Tax Deposits
- When to Deposit Employment Taxes
- When To Determine Your Employment Tax Deposit Schedule
- How to Determine Your Employment Tax Deposit Schedule
- How to Deposit Employment Taxes
- When an Insufficient Employment Tax Deposit May Not Cause a Penalty
- Payment of Employment Taxes With Form 941 (or Form 944)
- Who Pays Federal Unemployment Taxes (FUTA)?
- FUTA Tax Deposits
- When You Can Pay FUTA Taxes Annually With Form 940
- Payments Exempt from FUTA Tax
- What Are Advance Earned Income Credit Payments?
- Withholding Taxes and Advance Earned Income Credit Payments
- Advance Earned Income Credit Payments Treated as Tax Deposits
- Reporting Advance Earned Income Payments
- Taxes Withheld From Income Distributions Not Related to Employment
- Depositing Payroll Taxes versus Reporting Payroll Taxes
- Employment Tax Forms
- Employment Tax Forms Explained
- Zero Wage Return
- Schedule H, Household Employment Taxes
- Taxes Reported on Schedule H
- Schedule H and Form 1040
- Filing Extension and Schedule H
- Filing Schedule H When You're Not Required to File a Tax Return
- Federal Income Taxes for Household Employees
- IRS Employment Tax Penalty Refund Offer
- Employment Tax Deposit Penalties
- Order in Which Employment Tax Deposits Are Applied
- Advantages of Using a Payroll Service
- Your Role When Using a Payroll Service
- What a Payroll Service Does
- State New Hire Registry
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