Trust Fund Tax Payments

When you pay your employees, you do not pay them all the money they earned. As an employer, you have the obligation of withholding taxes from their paychecks. Your employees trust that you pay the withholding to the Treasury by making Federal Tax Deposits. That is why they are called trust fund taxes. The income tax and employees’ share of FICA (social security and Medicare) that you withhold from your employees’ paychecks are part of their wages you pay to the federal government instead of to your employees.

Through this withholding, your employees pay their contributions toward retirement benefits (social security and Medicare) for current retirees and the income taxes that are owed and reported on their tax returns. Your matching share of FICA along with your employees’ trust fund taxes, are paid to the government through the Federal Tax Deposit System. The withheld part of these taxes is your employees’ money, and the matching portion is their retirement benefit. Refer to Employment Taxes and the Trust Fund Recovery Penalty (TFRP) for more information.

Employment tax deposits are a current expense. Postponing paying them is not the same as making a late payment on your utility bill. Congress has established penalties for delays in turning over employment taxes to the Treasury. The longer it takes to pay that money, the more it will cost you. Refer to Publication 15, Circular E, Employer’s Tax Guide, for more information.

Need answers to questions about your trust fund tax, call Mitchell A. Port at (310) 559-5259.