Payroll Tax Problems for Businesses

The IRS treats payroll tax delinquency more aggressively than any other type of tax debt. There is a reason for that. Payroll taxes include money you withheld from your employees' paychecks — their Social Security, Medicare, and income tax withholding. In the eyes of the IRS, you were holding their money in trust. You spent it instead of sending it in.

Trust Fund vs. Non-Trust Fund

Every Form 941 liability has two components. The trust fund portion is the money withheld from employees — the employee share of FICA plus federal income tax withholding. The non-trust fund portion is the employer share of FICA. This distinction matters because the trust fund portion creates personal liability. The non-trust fund portion generally stays with the business entity.

The Trust Fund Recovery Penalty

Under IRC §6672, the IRS can assess a penalty equal to the trust fund portion against any responsible person who willfully failed to collect, account for, or pay over the trust funds. This penalty pierces the corporate veil. LLC, S-Corp, C-Corp — it does not matter. If you were a responsible person, the IRS comes after you personally.

Revenue Officers and Payroll Tax

Payroll tax cases are almost always assigned to revenue officers, not handled through automated collection. Revenue officers have the authority to seize assets, padlock businesses, and pursue personal liability aggressively. They will show up at your door.

If you are behind on payroll taxes, this is not a situation to handle alone. Talk to us before the revenue officer talks to you.

Tax attorney Darrin Mish has spent 32 years getting taxpayers out of IRS trouble. Free consultation — no obligation.