Small Business Alert: Watch Out for the 100% Penalty

Some tax sins are much worse than others. An example is failing to pay over federal income and employment taxes that have been withheld from employees’ paychecks. In this situation, the IRS can assess the trust fund recovery penalty, also called the 100% penalty, against any responsible person. It’s called the 100% penalty because the entire unpaid federal income and payroll tax amounts can be assessed personally as a penalty against a responsible person, or several responsible persons. Determining responsible person status Since the 100% penalty can only be assessed against a so-called responsible person, who does that include? It could be a shareholder, director, officer or employee of a corporation; a partner or employee of a partnership; or a member (owner) or employee of an LLC. To...

Beware the 100% Payroll Tax Penalty

If federal income tax and employment taxes (including Social Security) are withheld from employees’ paychecks and not handed over to the IRS, the so-called 100% Payroll Tax Penalty can be imposed. To make matters worse, the penalty can be assessed personally against a “responsible individual.” If a business makes payroll tax payments late, there are escalating penalties. And if an employer fails to make them, the IRS will crack down hard. With the “Trust Fund Recovery Penalty,” also known as the “100% Payroll Tax Penalty,” the IRS can assess the entire unpaid amount against a responsible person who willfully fails to comply with the law. Some business owners and executives facing a cash flow crunch may be tempted to dip into the payroll taxes withheld from employees....