What is a Trust Fund recovery penalty?

Trust fund taxes are those which are required to be withheld from the employee’s salary or wages for personal income tax and social security tax obligations. The IRS will assess a trust fund recovery penalty against any responsible person who possess control over the decision to divert withholding from the IRS.

The trust fund recovery penalty is equal to the income taxes, social security taxes, and Medicare taxes withheld from employee paychecks. Owners, decision makers, check signers, managers, supervisors, officers, and directors are all fair game. It is not unusual for the IRS to erroneously assess penalties against numerous individuals and allow the individuals to fight over responsibility.

Non-trust fund taxes are compromised of the employer’s matching social security (FICA), unemployment compensation (FUTA) and Medicare fund. These matching contributions come from the employer’s resources, rather than deducted from employee paychecks. If you operate under a corporate entity, you are not personally liable for non-trust fund withholdings, but they can be collected from the business accounts and assets of the business.

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