Short answer
Through the Trust Fund Recovery Penalty, the IRS can make owners and managers personally pay unpaid payroll withholding. As of 2026, per IRS.gov, an operating business that owes $25,000 (IRS.gov, July 2026) or less in trust fund taxes can get a Simple Payment Plan by phone, with no financial statement, if it is current on deposits.
Key takeaways
- Trust fund taxes are the income tax and employee Social Security and Medicare tax you withheld from paychecks; the IRS treats them as money held in trust for the government.
- The Trust Fund Recovery Penalty equals the unpaid trust fund tax and can be assessed against any responsible person who acted willfully, under IRC section 6672.
- Letter 1153 proposes the penalty and gives you 60 days to appeal (75 if the letter is addressed outside the United States); the IRS collects the trust fund amount only once in total.
- The in-business trust fund express installment agreement is now the Simple Payment Plan (Business Trust Fund): $25,000 or less, paid by the collection statute date, with no financial statement or lien determination required.
- No Fresh Start option works while new payroll deposits are being missed, so getting current comes first.
Why payroll tax balances are treated differently
When a business withholds federal income tax, Social Security and Medicare tax from employees’ pay, that money never belonged to the business. The IRS calls these trust fund taxes “because you actually hold the employee’s money in trust until you make a federal tax deposit in that amount.” Using it to pay rent or suppliers, even for a few weeks, is the most common way small businesses end up with a payroll tax balance.
Three things make these balances escalate faster than an income tax bill:
- Deposit penalties start almost immediately. The failure-to-deposit penalty is 2 percent for deposits 1 to 5 days late, 5 percent for 6 to 15 days, 10 percent after 15 days, and 15 percent if the tax is still unpaid more than 10 days after the first IRS notice. The tiers do not add together, but interest and the failure-to-pay penalty run on top.
- Personal liability. The trust fund part can be assessed against owners, officers and employees personally through the Trust Fund Recovery Penalty, even for a corporation or LLC.
- Balances stack every quarter. Payroll is reported on Form 941 each quarter. A business that keeps operating without depositing adds a new balance every pay period, and no IRS agreement survives that for long.
Only part of a payroll balance is trust fund tax. The employer’s own share of Social Security and Medicare, and federal unemployment (FUTA) tax, are business taxes, not trust fund taxes. The split matters for both the Trust Fund Recovery Penalty and the payment plan limits below.
The Trust Fund Recovery Penalty: who is responsible and how it is assessed
Under IRC section 6672, the IRS can assess the Trust Fund Recovery Penalty (TFRP) against any person who was responsible for collecting, accounting for and paying the trust fund taxes and who willfully failed to do so. Per the IRS TFRP page, “the amount of the penalty is equal to the unpaid balance of the trust fund tax.”
Who counts as a responsible person
The IRS describes a responsible person as someone with “the duty to perform and the power to direct the collecting, accounting, and paying of trust fund taxes.” That can include officers, directors, shareholders, employees with authority over which bills get paid, and payroll service providers. Job title alone does not decide it; check-signing authority and control over payments usually do.
What “willful” means
Willfulness does not require bad intent. The IRS standard is that the person “must have been, or should have been, aware of the outstanding taxes and either intentionally disregarded the law or was plainly indifferent to its requirements.” Paying other creditors while knowing payroll taxes were unpaid is the classic example.
How the process works
- Investigation. A revenue officer usually interviews potentially responsible people and records the answers on Form 4180, which the IRS uses to decide “if they meet the criteria for responsibility and willfulness” (IRM 5.7.4).
- Letter 1153. If the IRS proposes the penalty, it sends Letter 1153 with Form 2751. Signing Form 2751 means agreeing to the assessment, so read it carefully before you sign.
- 60 days to respond. You have 60 days from the date of the letter (75 if it is addressed to you outside the United States) to file a protest with the IRS Independent Office of Appeals, following Publication 5.
- Assessment. If you do not respond or you lose the appeal, the IRS sends a notice and demand for payment, and the penalty becomes your personal balance, collectible with liens and levies like any other.
Each responsible person can be held liable for the full trust fund amount, but the IRS collects that amount only once in total, whether from the business, one person or several (IRM 5.19.14). Payments by the business toward the trust fund portion reduce everyone’s exposure. That is one reason to resolve the business account early: a business payment plan approved at the lower balance can make a TFRP assessment unnecessary.
Business Simple Payment Plans and the old trust fund express agreement
The Simple Payment Plan (formerly the streamlined installment agreement) has three business tiers:
| Business situation | Balance limit (tax, penalties and interest) | Pay off | Financial statement |
|---|---|---|---|
| Operating business that owes trust fund (payroll withholding) taxes | $25,000 or less | by the CSED (IRS.gov, July 2026) | Not required |
| Business that owes no trust fund taxes (for example, only the employer share, FUTA or corporate income tax) | $50,000 (IRS.gov, July 2026) or less | by the CSED | Not required |
| Out-of-business sole proprietorship with trust fund taxes | $50,000 (IRS.gov, 2026) or less | by the CSED | Not required |
Per IRS.gov, Simple Payment Plans do not require “a collection information statement, lien determination, or trust fund recovery penalty determination.” IRM 5.14.5.4 adds that direct debit is not required for the Business Trust Fund plan, and that a TFRP determination is not required when the balance is $25,000 or less and the plan is granted within 120 days of the case being assigned to a revenue officer. The IRS can still file a lien or pursue the penalty in other cases.
How a business applies
Businesses cannot use the Online Payment Agreement tool. Call the number on your notice, or the IRS business line at 800-829-4933 (IRS.gov, 2026), or talk to the revenue officer assigned to your case. If you owe slightly more than the limit, you can pay the balance down to the limit before the plan is granted; the IRM does not let the first installment count as that pay-down.
Above the limits
A business that owes more, or cannot pay by the CSED, needs a non-simple installment agreement, and the IRS will usually ask for Form 433-B plus a lien determination. Other options are a partial payment installment agreement, currently not collectible status for a business with no ability to pay, or an offer in compromise. An offer requires the business to be current on its employment tax deposits.
Form 433-B: the business financial statement
Form 433-B, Collection Information Statement for Businesses (current revision Rev. 6-2026 (IRS.gov, 6-2026)), is how the IRS decides what a business can pay when it is over the Simple Payment Plan limits or asks for not-collectible status. It is for partnerships, corporations and LLCs. Sole proprietors report business income on Form 433-A instead, and offers in compromise use the separate Form 433-B (OIC) (Rev. 4-2026 (IRS.gov, 4-2026)).
The form has five sections:
- Business information, including deposit frequency and whether the business uses EFTPS
- Business personnel and contacts: for each partner, officer, LLC member or major shareholder it asks whether that person is “Responsible for Depositing Payroll Taxes”
- Other financial information, such as lawsuits, related-party transactions and pending sales
- Business assets and liabilities: bank accounts, receivables, vehicles, equipment and real estate
- Monthly income and expenses
Section 2 is the one to slow down on. The answer is signed under penalties of perjury and is the same question the IRS asks in a trust fund investigation. Answer it accurately, and if you are unsure whether someone meets the responsibility test, get advice before filing. Every entry space must be completed or marked “N/A”; the form warns that blanks can mean rejection or delay.
Staying current: the condition behind every option
The IRS will not keep a business on a payment plan, accept an offer or leave it in not-collectible status while new payroll taxes go unpaid. Before you apply, and for as long as any agreement lasts:
- Make every federal tax deposit on time for the current quarter, through EFTPS, IRS Direct Pay, your business tax account or a payroll provider.
- File every Form 941 (quarterly) and Form 940 (annual), even when you cannot pay what is on them.
- Keep a separate account for withheld taxes so trust fund money is not spent on operations.
- Watch your payroll provider. If a provider handles deposits, check them yourself in EFTPS. The IRS says “the employer is ultimately responsible for the deposit and payment of federal tax liabilities,” even when a provider does the work.
- Act on the first notice. The failure-to-deposit penalty jumps to its top tier 10 days after the first notice, and the failure-to-pay penalty rises to 1% (IRS.gov, 2026) a month 10 days (IRS.gov, 2026) after a notice of intent to levy.
If the business has closed, the picture changes: there are no new deposits to keep up with, but the TFRP can still reach the people who were responsible, and an out-of-business sole proprietor falls under the higher $50,000 tier.
Doing it yourself vs getting help
A business owing $25,000 or less in trust fund taxes, current on deposits and not yet facing a TFRP interview can often set up a Simple Payment Plan in one phone call at 800-829-4933. The Taxpayer Advocate Service (877-777-4778 (IRS.gov, 2026)) can help if a levy threatens the business’s ability to operate or the IRS is not responding.
Professional help is more often worth it when a revenue officer has scheduled a Form 4180 interview, when you have received Letter 1153, when the balance is above the business limits, or when several owners disagree about who was responsible. A representative can attend interviews and deal with the revenue officer for you under Form 2848. For individual owners, the personal side of the balance works like any other: see IRS payment plans and the guide for the self-employed.
Frequently asked questions
It is a penalty under IRC section 6672 that makes a responsible person personally liable for a business’s unpaid trust fund taxes: the income tax and employee Social Security and Medicare tax withheld from wages. It equals the unpaid trust fund tax and applies only if the person acted willfully.
Anyone with the duty and power to direct collecting, accounting for and paying trust fund taxes. That can be an owner, officer, director, shareholder, bookkeeper with authority over payments, or a payroll service provider. The IRS looks at actual control, such as signing checks and deciding which bills get paid, not just titles.
60 days from the date of the letter, or 75 days if it is addressed to you outside the United States. Within that window you can file a protest with the IRS Independent Office of Appeals. Signing the enclosed Form 2751 means agreeing to the assessment.
Yes. An operating business that owes $25,000 or less in trust fund taxes can get a Simple Payment Plan (Business Trust Fund) without a financial statement, paid by the collection statute date. Larger balances need a non-simple agreement, usually with Form 433-B. The business must be current on deposits.
Not under that name. IRM 5.14.5, revised 21 July 2026, retitled it the Simple Payment Plan (Business Trust Fund), with the same balance limit and a payoff by the collection statute date. Articles that still describe the old express agreement terms are out of date.
Yes, for the trust fund portion, if you are a responsible person who acted willfully. The Trust Fund Recovery Penalty cuts through the business entity. The employer’s own share of Social Security and Medicare tax is not part of it, and the IRS collects the trust fund amount only once in total.
Yes, but only if it is current on required federal tax deposits for the current quarter and has filed all required returns. The IRS evaluates the offer using Form 433-B (OIC) and the business’s ability to pay, and a pending offer does not stop new deposits from being due.
Sources
- IRS: Employment taxes and the Trust Fund Recovery Penalty (reviewed 10 Oct 2025)
- 26 U.S.C. 6672, Failure to collect and pay over tax
- IRM 5.7.4, Investigation and Recommendation of the TFRP (Form 4180, Letter 1153, Form 2751)
- IRM 5.19.14, Trust Fund Recovery Penalty (collected only once)
- IRS: Simple payment plans for individuals and businesses (reviewed 27 Jun 2026)
- IRM 5.14.5, Simple Payment Plans (Business Trust Fund), 5.14.5.4 (21 Jul 2026)
- IRS: Payment plans; installment agreements (reviewed 13 Aug 2026)
- IRS Form 433-B, Collection Information Statement for Businesses (Rev. 6-2026)
- IRS: Failure to deposit penalty (reviewed 24 Feb 2026)
- IRS: Understanding employment taxes (reviewed 5 Jan 2026)
- IRS: Outsourcing payroll duties (reviewed 4 Mar 2026)
- IRS: Offer in compromise (reviewed 27 Aug 2026)
- IRS Publication 5, Your Appeal Rights and How to Prepare a Protest
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