There is no wiggle room when it comes to handling federal income and FICA taxes withheld from employees’ paychecks. These taxes are government property that employers hold “in trust” and remit to the IRS on a set schedule. Employers are not permitted to use this “trust fund” money for any other purpose.
SERIOUS PENALTY
The penalty for violating the rules is severe. Any person involved in collecting, accounting for, or paying the trust fund taxes — a “responsible person” — who willfully fails to do so may be liable for a penalty equal to 100% of the unpaid taxes. This penalty is strictly enforced.
RESPONSIBLE PERSONS
Generally, a responsible person is anyone with the authority to ensure that taxes are paid. This may include a corporation’s officers, directors, shareholders, employees, and partners in a partnership. Under certain circumstances, even family members and professional advisors may be subject to the penalty. It’s not uncommon for there to be more than one responsible person. When that’s the case, each responsible person may be liable for the full penalty.
A WORD ABOUT WILLFUL
Failure to pay trust fund taxes can be willful even without an intentional attempt to evade payment. Temporarily “borrowing” from the trust fund to meet bona fide business expenses in a pinch can qualify as willful.