All employers are required to withdraw certain taxes from their employees’ paychecks or wages. Employment taxes consist of two portion of taxes—trust and non-trust fund taxes.
The trust portion of the taxes consists of the money withheld from an employee’s wages, such as Social Security, Medicare and income taxes. The non-trust portion is the employer portion of the Social security and Medicare. When these funds are collected, they are expected to be sent to the IRS on a regular basis. To help ensure payroll taxes are sent to the government, the IRS can impose a penalty, known as Trust Fund Recovery Penalty, on any parties responsible for the payroll taxes. The rationale for the penalty is that if an individual at company level held taxes in trust for the government, they should be held accountable.
The responsible party of the company can get hit with 100% penalty for the withheld portion of the taxes, and that could multiply in a very short time. The future of the business can adversely be impacted as non-payment can lead to its closure and the seizure of business assets by the government until the outstanding tax debts are satisfied.
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