Employment Tax Liability
Employer Payroll Tax Liabilities & Trust Fund Recover Penalties (TFRP)
If you have a business and you have payroll, then you have payroll tax liabilities. Most businesses have payroll tax liabilities from the taxes withheld from employees plus the additional taxes required to be paid by law. Additional Employer Taxes come from Social Security and Medicare taxes, matching the amounts withheld from employees, and federal and State unemployment taxes.
Suppose you do not pay your employer tax liabilities when they become due. In that case, the IRS and State Revenue Departments pursue collection actions aggressively, especially since the majority of the taxes due come from withholding from employees. The amount withheld from employees belongs to them and not the employer. The employer only holds the withheld funds in “trust” on behalf of the employees.
To encourage employers to pay their payroll tax liabilities, Congress passed the Trust Fund Recovery Penalty (TFRP) into law. The TFRP holds business owners and other parties responsible for paying Employer Taxes to a penalty equaling 100% of the taxes withheld from employees but not paid over to the IRS. That is why we often refer to the TFRP as the 100% penalty.
The IRS will normally interview you to determine if you are a responsible owner or another responsible party. The interview also helps the IRS decide if your failure to pay the Employer Taxes was willful. The IRS can show willfulness if you knew the taxes were due and you paid other bills instead of the tax liabilities. We apply strategies to defend against the TFRP or minimize its effect on you and others in your company.
