Payroll taxes you hold back from workers' pay are trust fund taxes. If the business doesn't send them in, the IRS can charge the Trust Fund Recovery Penalty to the people in charge. Then it can collect from their personal assets.
Who it fits
Owners, officers and others who control which bills a business pays.
- Who it fits
- Business owners
- Cost
- The penalty equals the unpaid trust fund tax. Late deposit penalties can reach 15%.
- IRS form
- Form 941 or 944
What to know first
Income tax and the worker's share of Social Security and Medicare that you withhold. You hold that money in trust for the government.
Anyone responsible for paying the taxes who willfully fails to. That can be an owner, officer, director or even a payroll company.
Paying other bills first when you can't pay payroll taxes is a sign of willfulness. No evil intent is needed.
The IRS sends a letter before it charges the penalty. You have 60 days to appeal, or 75 if you are outside the US.
After the penalty is charged, the IRS can file a lien or levy your personal assets.
Failure to deposit penalties can be up to 15% of the amount not deposited, based on how late it is.
Common questions
Does the business have to close first?
No. The IRS says the business does not have to stop operating for the penalty to be charged.
Source: IRS: Employment taxes and the Trust Fund Recovery Penalty
Is a bookkeeper who just pays bills liable?
Usually not. Someone who only pays bills as told, and doesn't decide which bills get paid, is not a responsible person.
Source: IRS: Employment taxes and the Trust Fund Recovery Penalty
What if I close my business?
You must pay final wages, make final tax deposits and file Form 941 or 944 for the last quarter you pay wages.
Source: IRS: Closing a business
Results depend on your situation. Not every case qualifies.
