trust

Home/trust

A Refresher on the Trust Fund Recovery Penalty for Business Owners and Executives

One might assume the term “trust fund recovery penalty” has something to do with estate planning. It’s important for business owners and executives to know better.

In point of fact, the trust fund recovery penalty relates to payroll taxes. The IRS uses it to hold accountable “responsible persons” who willfully withhold income and payroll taxes from employees’ wages and fail to remit those taxes to the federal government.

A matter of trust

The trust fund recovery penalty applies to employees’ share of payroll taxes, including withheld federal income taxes and the employee share of Social Security and Medicare taxes.

These monies are considered trust funds because they’re the property of the federal government, held in trust by the employer. The penalty amount is 100% of the unpaid taxes plus interest — it essentially serves as an alternative tax-collection method.

A responsible person

The trust fund recovery penalty is particularly dangerous because it can ensnare persons who ordinarily are protected against personal liability for business debts. As stated in the tax code, the penalty provides that:

Any person required to collect, truthfully account for, and pay over any tax imposed by this title who willfully fails to collect such tax, or truthfully account […]

By |2023-10-13T20:41:06+00:00October 13th, 2023|payroll, trust|0 Comments

Who in a Small Business Can Be Hit with the “Trust Fund Recovery Penalty?”

There’s a harsh tax penalty that you could be at risk for paying personally if you own or manage a business with employees. It’s called the “Trust Fund Recovery Penalty” and it applies to the Social Security and income taxes required to be withheld by a business from its employees’ wages.

Because taxes are considered property of the government, the employer holds them in “trust” on the government’s behalf until they’re paid over. The penalty is also sometimes called the “100% penalty” because the person liable and responsible for the taxes will be penalized 100% of the taxes due. Accordingly, the amounts IRS seeks when the penalty is applied are usually substantial, and IRS is aggressive in enforcing the penalty.

Wide-ranging penalty

The Trust Fund Recovery Penalty is among the more dangerous tax penalties because it applies to a broad range of actions and to a wide range of people involved in a business.

Here are […]

By |2021-07-12T18:18:20+00:00July 12th, 2021|tax planning, trust|0 Comments

Beware of the 3.8% Medicare Surtax for Estates and Trusts

Ever since the United States Supreme Court upheld the Affordable Care Act, most of the focus has been on how this increased tax effects individual taxpayers.  As determined by this decision, individual taxpayers with modified adjusted gross income over $200,000 (or $250,000 for married taxpayers) are subject to an increased 3.8%  Medicare surtax on certain investment income beginning in 2013.


Little focus has been given on how this increased Medicare surtax will increase tax liabilities for trusts and estates.  Income in an irrevocable trust is either taxed to the trust or to the trust beneficiaries.  If income in the trust or estate is accumulated at the trust or estate level, then the trust or estate pays the income tax.  If the income is distributed to the beneficiaries, however, the trust receives an income tax deduction for the amount of the distributable net income (DNI) and the beneficiaries report the taxable income. 


In the case of a trust or estate, the 3.8% Medicare surcharge is imposed on the lesser of either undistributed net investment income or the excess of adjusted gross income over the highest estate or trust income tax bracket.  For 2013, the highest trust income tax bracket begins at $11,950, […]
Go to Top