Employment Taxes and the Trust Fund Recovery Penalty: What You Need to Know — Part I

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As an employer, one of your most significant IRS responsibilities involves withholding federal and payroll taxes on behalf of your employees. Your failure to properly withhold or pay these taxes could lead to major repercussions, including, most notably, the trust fund recovery penalty.

In this blog series, we take a deep dive, examining what the TFRP is, why it exists, and what it could mean for your business.

What Is the TFRP?

The TFRP is a fee designed to encourage employers to properly withhold and pay employment taxes on behalf of their employees. This penalty is named for the payment of Social Security and Medicare taxes into a trust fund, which is then used to disburse benefits.

Section 6672 of the Internal Revenue Code highlights the liability for failing to properly withhold and pay employment taxes: “The total amount of the tax evaded, or not collected, or not accounted for and paid over.”

In other words, the TFRP totals 100 percent of the unpaid employment taxes. This steep fee can create a huge burden for struggling employers.

Who Is Responsible for the TFRP?

While the TFRP is typically associated with business owners, it can also be applied to a variety of other people responsible for collecting and handling employment taxes. Examples include accountants, bookkeepers, and other types of employees or third-party services.

To be regarded as responsible, individuals or businesses must have been aware of the need to collect and pay the taxes in question — but willfully chosen not to do so.

If you suspect that you could be held responsible for the trust fund recovery penalty, it is imperative that you seek support as soon as possible. An enrolled agent from the Highland Tax Group can help you navigate this ordeal and avoid the worst repercussions. Contact us today for more information.