Employers who fail to withhold certain taxes, including federal income tax, Social Security or Medicare taxes can be held personally liable for those taxes, according to the IRS.
These types of taxes are known as trust fund taxes, which must be paid to the IRS either through electronic funds transfer or as payments made with applicable tax returns. If these taxes are not paid, the IRS may charge a penalty in the amount not collected, with interest.
The IRS notes that the penalty may be collected from “any responsible person or persons who acted willfully [in not paying the taxes] if the IRS can’t immediately collect the taxes from the employer or business,” which could include asset seizure.
The full details of this liability are available on the IRS website.
• Notice 784 explains the fund recovery penalty and who has to pay it.
• Notice 931 explains deposit requirements for employment taxes, and the methodology and schedules for how they are paid.
It is essential for employers to understand that failure to comply with payroll tax withholding is not just an issue for the municipality — it can have serious personal consequences for those in charge. The IRS takes the collection of trust fund taxes seriously and has the authority to pursue individuals who are responsible for the oversight.