South Carolina Tax Attorney

    Last week, the "back to the basics" article was about who is responsible for the trust fund recovery penalty.  We defined a "responsible person" and briefly discussed the Trust Fund Recovery Penalty.  This week we move on to answer the question, what exactly is the Trust Fund Recovery Penalty?

    The purpose of the Trust Fund Recovery Penalty is to encourage the prompt payment of "trust fund taxes."  Trust fund taxes include withheld income and employment taxes, social security taxes, railroad retirement taxes, or collected excise taxes.  These taxes are called "trust fund taxes" because they are actually withheld from the employee for the benefit of the government and must be paid by the employer or business by making a federal tax deposit. 

    For example, if you have employees, the employer is responsible for one-half of the total employment tax for each employee.  So that is strictly a business liability.  The employer withholds the other half of the tax from the employee’s paycheck.  This withholding is the trust fund tax.  So when the IRS assesses the Trust Fund Recovery Penalty against you, you are not responsible for what the business should have paid, but only for what the business withheld from the employee’s check. 

    The actual amount is difficult to determine without having a lot of specific information regarding your business taxes, employee withholdings, etc.