Trust Fund Recovery Penalty
The Trust Fund Recovery Penalty (TFRP) is a penalty assessed by the Internal Revenue Service (IRS) against individuals responsible for collecting and paying federal employment taxes but who willfully fail to do so.
This penalty applies specifically to the unpaid trust fund portion of payroll taxes, which includes federal income tax withheld from employee wages and the employee’s share of Social Security and Medicare taxes. The TFRP can be imposed on various individuals, such as business owners, corporate officers, and others in positions of authority who knowingly disregard their tax payment obligations.
For example, if a business owner fails to remit withheld payroll taxes to the IRS, they may face a TFRP amounting to 100% of the unpaid trust fund taxes. This penalty can be assessed in addition to the tax liability and can significantly increase the financial burden on those held liable.
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