The Civil Trust Fund Penalty

Every company with employees is required to withhold a portion of the employee's paycheck and to forward it to the IRS. The withheld portion is called employment or trust fund tax -- it's money withheld for income tax, social secuirty, and Medicare taxes which is held "in trust" by the employer until it's paid to the Treasury.

What happens when the company fails to withhold, account for or deposit the employment taxes? The IRS introduces a nightmare called the Civil Trust Fund Penalty. Also known as the 100 percent penalty or trust fund recovery penalty, the Civil Trust Fund Penalty is a mechanism which allows the IRS to impose penalties on the delayed payment.

What makes the Civil Trust Fund Penalty so onerous is that it can be assessed not only to the company, but to individual officers and employees of the company responsible for handling employment taxes. If you have employment tax issues, consult a professional as soon as possible.