As an employer, you must withhold tax payments from employee paychecks under federal law. Federal Insurance Contribution Act (FICA) contributions include both employee and employer contributions to Social Security and Medicare and federal taxes the employee owes based on their earnings. These payments are also known as “trust fund payments” because employers hold them in trust before making a federal tax payment. Your company must make these payments using IRS Form 941 to the U.S. Treasury through the Federal Tax Deposit System.

Unfortunately, because too many employers haven't made trust fund payments, the IRS is cracking down on employers, and the repercussions can be serious. The IRS can impose civil penalties or refer employers for criminal prosecution. You can even face personal liability. As a result, it's important to ensure that you have a thorough understanding of how and when you must remit payroll taxes and the consequences if you fail to do so. An experienced tax attorney can guide you through this tricky process.

Penalties for Failing to Make FICA or Trust Fund Tax Payments

If your company fails to make FICA payments, the IRS may assess the Trust Fund Recovery Penalty (TFRP). First, the IRS will assign a Recovery Officer to investigate the case. The RO may recommend assessing penalties or referring the case for criminal prosecution. Criminal trust fund prosecutions typically involve a closely held company where an owner, officer, or majority shareholder has control or access to employee withholding taxes collected from the business's employees. If this controlling person uses the funds for other purposes and the company makes a deliberate decision to avoid filing the required quarterly or annual payments or files a false return, the RO may decide the case should be criminally prosecuted.

Even if your company doesn't face criminal prosecution, it can face monetary penalties. Moreover, if your business cannot pay because of insolvency, the IRS may assess you personally. The IRS can hold anyone personally liable if they are “responsible” for withholding, accounting for, or paying these taxes. A “responsible person” includes officers of a corporation, partners, sole proprietors, employees, or a trustee or agent of the business.

Statute of Limitations for Trust Fund Recovery Penalties

The statute of limitations for the IRS to assess trust fund recovery penalties against company officers is three years from the filing date of your company's Form 941. The statute of limitations to assess the tax liability itself is ten years from the date of filing. Ultimately, the IRS has a long reach when assessing trust fund tax payments and penalties. If you discover you haven't been withholding or making FICA and trust fund payments or if you've underpaid, you may still have options. An experienced tax attorney can help you untangle the problem and negotiate with the IRS on your behalf.

Hire an Experienced Baltimore, Maryland Tax Attorney

Navigating the ins and outs of employer tax contributions, quarterly taxes, FICA contributions, and trust fund payments can be complicated. You need the guidance and advice of an experienced tax attorney to avoid problems. But if you're already facing a problem with FICA quarterly contributions or the TFRP, you need skilled tax representation as soon as possible.

Whether you're facing an investigation or the IRS is already assessing penalties, the skilled tax attorneys at Gabaie & Associates, LLC can help. We specialize in helping our clients in Maryland and all over the United States to solve complex tax problems before they become critical. Contact us online for a free consultation or give Gabaie & Associates, LLC, a call at 410-358-1500.