Any business with employees must withhold money from its employees’ paychecks for income and employment taxes, including Social Security and Medicare (FICA) taxes. The business has to forward that money to the government. A business that knowingly or unknowingly fails to remit these withheld payroll taxes in a timely manner will find itself in trouble with the IRS.
The IRS may levy a penalty, known as the trust fund recovery penalty. The IRS assesses the penalty on individuals classified as “responsible persons.” The amount of the penalty equals to 100% of the unpaid federal income and FICA taxes withheld from employees’ pay.
Who’s a Responsible Person for Payroll Taxes?
Any person who is responsible for collecting, accounting for, and paying over withheld taxes and who willfully fails to remit those taxes to the IRS is a responsible person who can be liable for the trust fund recovery penalty. A company’s officers and employees in charge of accounting functions could fall into this category. However, the IRS will take the facts and circumstances of each individual case into consideration.
The IRS states that a responsible person may be:
- An officer or an employee of a corporation
- A member or employee of a partnership
- A corporate director or shareholder
- Another person with authority and control over funds to direct their disbursement
- Another corporation or third party payer
- Payroll service providers
The IRS will target any person who has significant influence over whether certain bills or creditors should be paid or is responsible for day-to-day financial management.
Working with the IRS
If your responsibilities make you a “responsible person,” then you must make certain that all payroll taxes are being correctly withheld and remitted in a timely manner. Talk to us if you need to know more about the requirements. We can also help you analyze your business’s cash flow so you’ll be in a better position to meet your obligations to the IRS.