Employer Responsibilities For Tax Dollars Held in Trust
A trust fund tax are dollars that are withheld from an employee’s paycheck when they are paid (including federal and state income tax withholding, Social Security and Medicare taxes) by their employer and are to be held in trust until they are due and remitted to the IRS Treasury or Georgia Department of Revenue (for state withholding). Georgia state sales taxes likewise are to be collected in trust and are then required to be remitted when due.
Tax law requires that when paying your employees, you do not pay them all of the money earned because employers have the additional requirement of withholding taxes from an employee’s paycheck. The income tax withheld and an employee’s share of FICA (Social Security) & Medicare are part of an employees paycheck that are to be remitted over to the IRS rather than to an employee as part of the IRS tax system. This system requires (trust) that you, as employer, to pay the withholding over to the IRS Treasury by making Federal Tax Deposits, thus the term trust fund taxes.
By this withholding and payment to the IRS and Georgia, employees pay their contributions toward retirement benefits (Social Security and Medicare) and the income taxes that are reported on their personal income tax returns (IRS Form 1040 and Georgia Tax Form 500). Employees’ Trust Fund Taxes, along with your matching share of FICA are paid to the U.S. Treasury via the Federal Tax Deposit System (FTDS). These monies, along with the employer’s matching portion, are for an employee’s retirement benefit.
"Congress has established large penalties for not paying these trust fund monies over to the IRS on a timely basis. Failure to file and pay the taxes and the attendant returns can result in both failure to file and failure to pay penalties. The best way to avoid these taxes is to utilize the services of a payroll service which will debit your account for the payroll taxes that are due and remit them accordingly as the returns and payment are due."
— Atlanta CPA Firm, His CPA PC
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