Personal liability with employment taxes

The funds withheld from an employee’s paycheck and remitted to the IRS on a monthly or quarterly basis cannot be used for any other business expense under any circumstances.


These funds are referred to as the Trust Fund tax, and do not belong to your business – you are holding them in trust for the IRS.

  • Use these funds to pay the associated taxes as soon as they are due, and for nothing else.
  • If these taxes are not paid on time, the IRS will pursue these funds aggressively.


The liability protection of LLCs and corporate entities does not shield business owners from liability regarding the Trust Fund tax.

  • In the case of a Trust Fund tax deficiency, the IRS will conduct a series of interviews with business employees to determine liability.
  • Any individual with spending authority for a business can be held liable, regardless of their position in the corporate hierarchy.
  • Each individual is held jointly and severally liable for the collective debt, meaning that each individual is held liable for the full amount rather than a proportional share of it.


Collect these funds in a separate bank account and leave them alone.

  • Plan your expenses assuming these funds do not exist, because they belong to the IRS from the moment they are collected.
  • Should you find yourself in a collections issue with the IRS, do not ignore their communications – engage with the agent for your case and figure out a solution.
Michael Faehner

Michael J. Faehner

Michael J. Faehner is the founder of Faehner PLLC in Oldsmar, Florida. Michael focuses his practice on estate planning, corporate,…

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