Payroll Taxes and the Trust Fund Penalty (TFP)
Posted by: Mark Zinn
December 21, 2007
Topic: Payroll Taxes and the Trust Fund Penalty (TFP)
A company's liability for payroll taxes is twofold: first, the company is responsible for withholding one-half (7.65%) of the total liability (15.3%); secondly, the company is also responsible for matching that withholding with the other half.
The part withheld is called the trust fund portion because it is the employee's money, and should be held in trust. Unfortunately, when bills need to be paid, and cash is not abundant, many companies "borrow" from the money withheld from their employees, planning to pay it back when business picks up.
Often, however, business does not pick up, and the problem continues to grow until it is completely un-curable. The IRS does not hesitate to shut companies down for this type of issue. And, if the company is shut down, whether voluntarily by the owner, or involuntarily by the IRS, someone from the former company is going to be held liable for the part of the payroll tax that was withheld from the employee's paychecks. This liability is called the Trust Fund Penalty and attaches personally to anyone who had responsibility to pay the withheld money over to the IRS.
In many small companies, the owner will be that person. However, the IRS will also attempt to hold liable anyone who had the ability to sign checks. So, if the company has a Treasurer, who's responsibility it is to pay bills, that person could be held "jointly and severally liable" for the TFP. Further, if a Vice President, for example, signed one check while the person with that responsibility was out of town, the IRS will certainly attempt to hold that person liable.
Joint and severable liability means that all responsible parties are jointly liable, and each party is individually liable. And, again, the TFP is something that does not go away when the company does.
On the other hand, the portion that the company was supposed to match is a liability that is extinguished when the company is closed. Therefore, doing so voluntarily is sometimes a viable option.Topics
Hardship/Currently-Not-Collectible Status
Hiring an IRS Representative
Innocent Spouse Relief
Installment Agreements
Liens and Levies
Offers In Compromise
Payroll Taxes and the Trust Fund Penalty (TFP)
Payroll Withholding Taxes
Substitute for Return (SFR)
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December 21, 2007
Payroll Taxes and the Trust Fund Penalty (TFP)
December 20, 2007
Substitute for Return (SFR)
