Why payroll taxes are different
The income tax and the employee's share of Social Security and Medicare that you withhold from paychecks are trust fund taxes: you're holding the employees' money for the government. If they aren't paid over, the IRS can assess the Trust Fund Recovery Penalty, equal to 100% of the unpaid trust fund taxes, personally against anyone it considers responsible and willful. That can include owners, officers and sometimes bookkeepers who controlled which bills got paid.
The usual sequence
- Late or missed deposits trigger failure-to-deposit penalties of up to 15%, plus interest.
- A revenue officer may be assigned to the business.
- The IRS investigates who was responsible, often through an interview recorded on Form 4180.
- A proposed Trust Fund Recovery Penalty is sent (Letter 1153), with a limited time to appeal.
How we help
- Prepare and file any missing Forms 941 and 940 and get current deposits on track first
- Represent the business and you personally, including in the 4180 interview
- Negotiate an installment agreement; smaller business balances may qualify for a streamlined in-business agreement
- Challenge or appeal a proposed Trust Fund Recovery Penalty where the facts support it
Frequently asked questions
Can I be personally liable for my company's payroll taxes?
Yes. The Trust Fund Recovery Penalty can be assessed personally against any responsible person who willfully failed to pay over withheld taxes, regardless of the business's legal structure.
Should I do the 4180 interview myself?
We strongly recommend having representation. Your answers are used to decide who is personally liable.
Do I have to stay current while I resolve the past balance?
Yes. The IRS generally won't agree to any resolution while new payroll tax deposits are being missed.
Can a business get a payment plan for payroll taxes?
Often yes, especially for smaller balances, provided all returns are filed and current deposits are being made.