Employment Tax Penalty
To encourage prompt payment of withheld income and employment taxes, including social security taxes, railroad retirement taxes, or collected excise taxes, the IRS can impose employment tax penalties, including the Trust Fund Recovery Penalty (TFRP). These taxes are called trust fund taxes because you actually hold the employee’s money in trust until you make a federal tax deposit in that amount. The TFRP may apply to you if these unpaid trust fund taxes cannot be immediately collected from the business. The business does not have to have stopped operating for the TFRP to be assessed.
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If you withhold taxes from your employees’ pay checks, you are required to deposit the amount withheld plus any applicable employer portion on the deposit schedule determined for your business by the IRS. In addition to the failure to deposit and failure to pay penalties, the IRS can also charge you a trust fund recovery penalty (TFRP) personally, if you are a responsible individual. To avoid potential personal liability, be sure all federal tax deposits are made on the dates required.
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