Information For Employers
Collection of employment tax (a.k.a. Trust Fund Taxes)
Employment taxes are the amount you must withhold from your employees for their income tax and Social Security/Medicare tax (trust fund taxes) plus the amount of Social Security/Medicare tax you pay for each employee. Federal unemployment taxes are also considered employment taxes. Employment taxes are incurred at the time you pay wages and generally paid in semi-weekly or monthly deposits. You must use electronic funds transfer to make all federal tax deposits, generally through the Electronic Federal Tax Payment System (EFTPS). See Publication 966, Electronic Federal Tax Payment System: A Guide To Getting Started.
What the IRS can do if you don't pay your employment taxes:
- Assess a failure to deposit penalty, up to 15% of the amount not deposited in a timely manner.
- File a Notice of Federal Tax Lien and/or take levy action
- Propose a Trust Fund Recovery Penalty assessment against the individuals responsible for failing to pay the trust fund taxes.
- Refer the matter to the Department of Justice for civil collection or criminal prosecution for failure to adhere to the reporting and payment requirements mandated by the Internal Revenue Code.
About trust fund taxes
Trust fund taxes are the income tax, Social Security tax, and Medicare tax (trust fund taxes) withheld from the employee's wages. They are called trust fund taxes because the employer holds these funds “in trust” for the government until it submits them in a federal tax deposit. Certain excise taxes are also considered trust fund taxes because they are collected and held in trust for the government until submitted in a federal tax deposit. For more information, see Publication 510, Excise Taxes. To encourage prompt payment of withheld employment taxes and collected excise taxes, Congress has passed a law that provides for the Trust Fund Recovery Penalty. For more information on employment taxes or trust fund taxes, see Publication 15, Circular E, Employer's Tax Guide.
Trust Fund Recovery Penalty
The Trust Fund Recovery Penalty is a penalty that is assessed personally against the individual or individuals who were responsible for paying the trust fund taxes, but who willfully did not do so. The amount of the penalty is equal to the amount of the unpaid trust fund taxes. For additional information, see Notice 784, Could You be Personally Liable for Certain Unpaid Federal Taxes? or visit www.irs.gov/TFRP. If the Trust Fund Recovery Penalty is proposed against you, you'll receive a Letter 1153 and Form 2751, Proposed Assessment of Trust Fund Recovery Penalty. If you agree with the penalty, sign and return Form 2751 within 60 days from the date of the letter. To avoid the assessment of the Trust Fund Recovery Penalty, you may also pay the trust fund taxes personally. If you disagree with the penalty, you have 10 days from the date of the letter to let us know that you don't agree with the proposed assessment, have additional information to support your case, or want to try to resolve the matter informally. If you can't resolve the disagreement with us, you have 60 days from the date of the Letter 1153 to appeal with the Office of Appeals. For more information, see Publication 5, Your Appeal Rights and How to Prepare a Protest if You Don't Agree. If you don't respond to the letter, the IRS will assess the penalty amount against you personally and begin the collection process to collect it. The IRS may assess this penalty against a responsible person regardless of whether the company is still in business.