Payroll and Trust Fund Tax Debt
The area where a company debt can become a personal one. Describable; not assessable.
The thing most worth knowing
One published sentence carries the whole exposure: "You are acting willfully if you pay other expenses of the business instead of the withholding taxes." That is the IRS's definition of willfulness for the Trust Fund Recovery Penalty. Keeping a struggling business alive by paying suppliers before payroll taxes is, on the IRS's own words, the conduct described. This hub sets out the rule. It does not and cannot tell you whether it reaches you.
What this covers
- What the IRS states the Trust Fund Recovery Penalty is, and who it defines as a responsible person
- The published definition of willfulness, and the example the IRS gives
- The failure-to-deposit penalty, which is the business-level penalty on the same taxes
- The collection notices that arrive on an employment tax balance
This page routes. It does not repeat what the pages below already say, and it does not tell you which situation you are in.
Questions this raises
Who can the Trust Fund Recovery Penalty reach?
The IRS states a responsible person "can be an officer of a corporation, a partner, a sole proprietor, or an employee of any form of business", and that "a trustee or agent with authority over the funds of the business can also be held responsible". It is framed around authority over funds rather than job title. Whether any particular person meets it is the IRS's determination.
Can a payment plan be set up on employment tax?
The IRS states on LT73 that you must be current on your filings to apply for an installment agreement. Where employment tax returns are outstanding, filing them comes before the plan.
Does innocent spouse relief cover it?
No. The IRS names "trust fund recovery penalties for employment taxes" among five categories of tax that innocent spouse relief does not reach.
How does the failure-to-deposit penalty work?
The IRS charges it on the number of calendar days a deposit is late: 2% at 1 to 5 days, 5% at 6 to 15, 10% beyond 15, and 15% more than 10 calendar days after a first notice or on the day a demand for immediate payment is received. It states the bands do not accumulate — a deposit more than 15 days late is 10%, not 2 plus 5 plus 10.
Notices that arrive in this situation
Options the IRS publishes
Listed because they relate to this situation, not because any of them applies to you. That is the IRS’s determination on your full financial position.
The vocabulary
What this page does not say
- The procedure by which the IRS proposes the Trust Fund Recovery Penalty — the Letter 1153, the Form 4180 interview, and the window to protest — is in material that has not been retrieved. None of it is described here.
Sourced to primary IRS materials and editorially reviewed. Not reviewed by a tax professional. Not tax advice. Every fact on this page comes from a linked record that carries its own sources and review date.