Payroll Tax and Trust Fund Recovery Penalty Help in Pasadena, CA
When a business falls behind on payroll taxes, the problem does not stay with the business. The IRS can pursue the people behind it personally. At Fresh Start Tax Relief Services in Pasadena, our licensed tax agents help business owners, officers, and bookkeepers respond to unpaid payroll taxes and the trust fund recovery penalty before personal assets are at risk. We are a women-owned business with decades of experience dealing with the IRS on payroll tax problems.
Why Payroll Taxes Are Treated Differently
Every paycheck includes money the business withholds on behalf of its employees: federal income tax and the employees' share of Social Security and Medicare. These are called trust fund taxes, because the business holds them in trust for the government. The IRS views failing to turn them over as using money that never belonged to the business.
That is why payroll tax debt draws faster and more aggressive collection than many other tax problems, and why the IRS has a special tool for collecting it from individuals.
The Trust Fund Recovery Penalty
The trust fund recovery penalty equals 100% of the unpaid trust fund taxes. It is assessed personally against anyone the IRS considers a responsible person who willfully failed to collect or pay the tax.
Who Can Be Held Responsible
Responsibility is not limited to owners. Corporate officers, partners, and even bookkeepers or office managers can be held responsible if they had the authority to decide which bills got paid. Willfulness generally means knowing the taxes were due and choosing to pay other expenses instead, such as rent, suppliers, or wages.
How the IRS Builds Its Case
A revenue officer typically interviews the people involved, often using Form 4180, to determine who had authority over the business's finances. What is said in that interview can shape who is assessed. Having experienced representation before it takes place matters.
Your Window to Respond
When the IRS proposes the penalty, it sends Letter 1153. You generally have 60 days to appeal before the penalty is assessed. Once that window closes, the IRS can begin collecting from you personally.
Failure-to-Deposit Penalties
Separate from the trust fund recovery penalty, the business itself faces penalties for late payroll tax deposits. They generally run 2% for deposits 1 to 5 days late, 5% for 6 to 15 days late, and 10% for more than 15 days late. The penalty rises to 15% if the tax remains unpaid more than 10 days after the IRS sends a demand.
Penalty abatement may reduce these penalties when the business qualifies.
How We Help Business Owners
We start by reviewing every quarter with unpaid payroll taxes, the penalties assessed, and who the IRS is likely to treat as responsible. Then we build a plan that protects both the business and the people behind it. That plan may include representation during the IRS interview, an appeal of a proposed trust fund recovery penalty, or a payment plan for the business. Businesses that owe $25,000 or less may qualify for a plan of up to 24 months. When the business makes voluntary payments, it can generally designate them to the trust fund portion first, which reduces the amount that can be assessed personally. Our
business tax debt page covers other business tax problems we help resolve.
Closing the Business Does Not End the Debt
Many owners assume that shutting down the company will make the payroll tax problem disappear. It does not. Once the trust fund recovery penalty is assessed against you personally, it follows you after the business closes, and the IRS can collect it from your personal income and assets.
Serving Pasadena Businesses and Employers Nationwide
We help business owners in Pasadena, Alhambra, San Gabriel, Glendale, and across Los Angeles County, and we work with employers far beyond Southern California: "Not only do we service every single county in California, but we service taxpayers nationwide." Learn more about the Tax Superwomen on the Fresh Start Tax Relief home page.
Frequently Asked Questions
What are trust fund taxes?
Trust fund taxes are the federal income tax and the employees' share of Social Security and Medicare that a business withholds from paychecks. The business holds them in trust for the government.
Who can be held responsible for the trust fund recovery penalty?
Anyone with authority over which bills the business paid who willfully failed to pay the taxes, including owners, officers, partners, and sometimes bookkeepers.
How much is the trust fund recovery penalty?
It equals 100% of the unpaid trust fund taxes and is assessed personally against each responsible person.
How long do I have to appeal a proposed penalty?
You generally have 60 days from the date of Letter 1153 to file an appeal before the penalty is assessed.
Does closing my business end the liability?
No. Once the penalty is assessed against you personally, it remains your debt after the business closes, and the IRS can collect from your personal assets.
What are the failure-to-deposit penalties?
They generally range from 2% for deposits 1 to 5 days late up to 10% for more than 15 days late, and 15% if the tax remains unpaid more than 10 days after an IRS demand.