Trust Fund Recovery Penalty

Employers who fail to properly withhold and pay employment taxes may be held personally liable for a portion of the unpaid payroll taxes, referred to as “trust fund taxes.” The trust fund portion consists of the federal income tax withheld from the employees’ wages and the 50% of FICA withheld from the employees’ wages. These taxes are referred to as trust fund taxes because they are held in trust for the government. To discourage taxpayers from using this money to pay other business expenses, the government is permitted to collect the trust fund taxes from certain persons via the “Trust Fund Recovery Penalty.” While this is referred to as a penalty, it is equal to the amount of the unpaid trust fund taxes.

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