Trust and Fund Recovery Penalty

 

Trust fund taxes have to do with the payroll taxes for a business that pays anyone W-2 wages or for tax withheld on a 1099-MISC for an independent contractor who has worked for your business. Following is a quote from the IRS website that defines a trust fund tax.

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“A trust fund tax is money withheld from an employee's wages (income tax, social security, and Medicare taxes) by an employer and held in trust until paid to the Treasury. ... Your employees trust that you pay the withholding to the Treasury by making Federal Tax Deposits (PDF). Apr 20, 2018” (https://www.irs.gov/businesses/small-businesses-self-employed/trust-fund-taxes)

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The IRS takes these taxes very seriously and failure to submit the taxes on behalf of the employees within the required time to deposit the taxes can result in serious penalties.

 

The IRS pursues two main things in these cases: a) who is responsible to pay and make the payroll tax deposits and b) what is the level of willfulness in failing to make the required payments such as giving preference to paying other bills with full knowledge that trust fund taxes were due.