Payroll Tax: What is the Trust Fund Recovery Penalty?

Payroll taxes are paid by an employer on behalf of an employee. These taxes are used to fund key public programs, including Social Security, Medicare, Medicaid and unemployment insurance. When companies withhold money for payroll taxes, those funds are being held in trust — they must be paid on time, in full.

Should an employer fail to pay the amount of payroll taxes owed to the IRS, harsh sanctions may follow. In fact, a business or organization could be hit with a stiff fine called the Trust Fund Recovery Penalty (TFRP). Here, our Chicago, IL payroll tax attorneys explain the most important things employers need to know about the TFRP.

The Trust Fund Recovery Penalty: 100 Percent of the Unpaid Payroll Tax

Employers that withhold and deposit payroll taxes have a legal duty to do so in a competent and accurate manner. Of course, mistakes can and do happen. Should there be an accounting error, an employer should take immediate action to attempt to resolve it.

If an employer is deemed to have willfully failed to make the full payroll tax payments, they will be charged a Trust Fund Recovery Penalty. As explained by the Internal Revenue Service (IRS), the TFRP is equal to the amount of unpaid payroll taxes plus interest. In other words, the TFRP is a 100 percent fee.

As an example, imagine the IRS determines a Chicago employer willfully failed to pay $16,000 in payroll taxes. In this scenario, the employee will owe the full amount of payroll taxes ($16,000) plus a 100 percent penalty (an additional $16,000), plus interest on the full $32,000.

Payroll Tax Problems? Your Company May Still Be Able to Avoid Penalty Fees

If your company or organization has run into payroll tax problems, it is imperative you seek guidance from an experienced professional. The TFRP is a stiff fine. Further, the IRS is notoriously aggressive in imposing this fine on employers.

The good news is you may still be able to avoid facing this penalty. Under IRS regulations, the government must demonstrate willfulness in order to charge a defendant a 100 percent penalty fee. Willfulness is defined as intentional disregard of the law or gross indifference to legal requirements. Our Chicago payroll tax lawyers will investigate the specific circumstances of your case and help you take action to protect the rights and financial interests of your business.

Call Our Illinois Payroll Tax Lawyers for Immediate Assistance

At North Suburban Legal Services LLC, our Chicago payroll tax attorneys are skilled and solutions-oriented advocates for businesses and employers. If you have questions about the payroll tax Trust Fund Recovery Penalty, we are here to help. To arrange a free, completely confidential case evaluation, please contact our legal team today at (312) 909-6089. With a law office in Chicago, we serve employers throughout Northern Illinois, including in Cook County, DuPage County and Will County.

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