Don’t Break The “Trust”: Paying Payroll Taxes Responsibly
Posted on 22. Feb, 2010 by Attorney in Uncategorized
In the business of doing business, one of the legal responsibilities that employers take on is the payment of income taxes on behalf of their employees. An employer withholds income tax, social security, and healthcare taxes from employees’ payroll, held in trust until paid to the Treasury, thus, collectively called trust fund money.
The trust fund is collected (withheld) every month from employees’ paychecks, which will become their monthly contribution towards retirement benefits and the income tax reported on their tax returns. But what if the employer cannot turn over the trust fund to the Treasury on time?
TFRP and Responsibility
To ensure that employers pay over the trust fund responsibly and on time, the United States Congress passed the Trust Fund Recovery Penalty (TFRP). The penalty applies to any employer when the unpaid trust fund taxes cannot be immediately collected from the business. The business does not necessarily to have ceased operations in order for the TFRP to be assessed.
It can be assessed against any person who is responsible for collecting and paying withheld income and employment taxes, or paying collected excise taxes, and willfully fails to pay them. A responsible person is any person or corporation with authority over funds to direct disbursement, including an officer or employee of a corporation and a member or employee of a partnership, among others.
Calculating the Penalty
The amount of the TFRP is equal to the unpaid balance of the trust fund tax. To compute this, the unpaid income taxes and the employee’s portion of the withheld FICA taxes are determined. For collected taxes, the unpaid amount of collected excise taxes is the basis.
The responsible person will receive a letter from the Internal Revenue Service (IRS), which states intent of assessment of the TFRP against the person. He or she will have 60 days (75, if address outside the U.S.) to appeal. If no response is received, the IRS will assess the penalty and send a Notice and Demand for Payment. If a person receives such notice, the IRS can take collection action against that person’s personal assets.
This article is intended solely to offer general information on the subject. None of the content should be considered as legal advice.
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