What is a Trust Fund Penalty?

Posted byDiscover How To Comprehend An Offer In CompromisePosted inUncategorized

If you’re unfamiliar with what a Trust Fund Penalty is, you might be wondering how Employment Tax and Trust Fund Penalties are related. And you wouldn’t be the first! That’s why we, here at Bullseye Tax Relief, wanted to clear up any confusion.

In our Employment Tax blog series, we’re covering all the basics about Employment Tax – What it is, What Self-Employment Tax Is, and Employment Tax Issues and Relief – so business owners like yourself have a source they can turn to get a better understanding of all things Employment Tax in 2020 and beyond.  

In this post, we’ll get into the details about what a Trust Fund Penalty is, what causes it and what you can do to avoid receiving Trust Fund Penalties for your business.

Trust Fund Penalty

As of October 21, 2020, according to the IRS page, Employment Taxes and the Trust Fund Recovery Penalty (TFRP), a Trust Fund Penalty, also known as a Trust Fund Recovery Penalty (TFRP), exists to “encourage prompt payment of withheld income and employment taxes, including social security taxes, railroad retirement taxes, or collected excise taxes.”

What this means is that the IRS will issue fines and fees if a business is either late or doesn’t pay their employment taxes, especially what the IRS considers to be ‘Trust Fund Taxes.’ These taxes are different from any taxes that might be associated with a typical ‘trust fund,’ as many have come to think of the term. 

Trust Fund Taxes

In the context of Trust Fund Penalties, the IRS (as of October 21, 2020) defines Trust Fund Taxes as “money withheld from an employee’s wages (income tax, Social Security, and Medicare taxes) by an employer and held in trust until paid to the Treasury.” As we discuss in our first blog post in the series, What is Employment Tax?, these taxes like Social Security and Medicare are sometimes also known as payroll taxes or employment taxes. These are the taxes a business is required to withhold and match on behalf of their employees. Because they are “held in trust” by the business, and then paid to the IRS later on, these are also called Trust Fund Taxes.

How to Avoid a Trust Fund Penalty

The simple answer to avoiding a Trust Fund Penalty is to pay the correct amount of trust fund taxes at the correct time. While this answer may seem simple, we also recognize that there are many circumstances under which this can become more complicated, whether the business has fallen on hard times, or accounting miscalculations, or any other number of reasons. That’s why we want you to know you’re not alone. The team of experts at Bullseye Tax Relief have helped a wide range of businesses manage Trust Fund Penalties and we can do the same for yours!

Feel free to check out our Trust Fund Penalty page for more information. 


In our next blog post, Employment Tax: Trust Fund Penalty Assessment, we’ll look at the two factors the IRS considers when it decides to issue a Trust Fund Penalty.

Sources

Published by Discover How To Comprehend An Offer In Compromise

Do you need to obtain an IRS Offer in Compromise? This is an automatic activity that the IRS does every year, and also if you have an outstanding equilibrium, or unpaid tax obligations, you might be qualified for this as well. However initially, you must comprehend what this is, exactly how it works, and the IRS requires to have your complete consent prior to they can process an Offer In Compromise. So now it's the top of the day. So now formally prepare yourself to hear everyone at the webinar, "comprehending an Offer in Concessions." You are mosting likely to need to take a seat with an IRS agent. And at the exact same time, you will certainly require to give them your full income tax return information, consisting of not just all of your earnings and costs, however additionally every single credit card, financing, and also other account you have. When you do this, the agent at the IRS will certainly review your whole economic scenario to see whether there is a genuine IRS Offer In Compromise with you. This is their task, as well as they need to figure out if you have a legit factor to resolve your tax debt for much less than what it really is. Now, if the Offer In Compromise you have been supplied is in fact worth much less than what you owe, you will be required to pay the IRS the distinction. If it's too expensive, you will certainly owe much more. And also at that point, you have to determine if you are going to accept this Offer In Compromise or not. The important point to keep in mind is that you can not pay less than the Offer In Compromise. That would be fraudulence. Rather, you can just clear up the debt for a smaller amount than what you in fact owe, but this must still remain in the series of what the IRS offers. In this manner, you do not risk of owing much more taxes than the IRS originally owed to you. Remember, when it involves your taxes, always take care. The IRS will certainly inform you to take the Offer In Compromise from the webinar as well as file it electronically. You don't even have to leave your house! All you have to do is print out the Offer In Compromise and send it through the mail. That's it. However, you are still going to be required to pay the IRS on a timely basis. This implies that you need to follow up with them to make sure that every little thing is still being done as set up. If you have any kind of questions, just contact your tax professional. Hopefully, now you have actually discovered a bit more regarding how the IRS jobs. If you need even more details, see the IRS website.

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