trust fund recovery penalty (TFRP)

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A trust fund recovery penalty (TFRP) is a hefty fine charged for an employer knowingly or willfully keeping employee FICA and income taxes owed to the IRS. Employers retain taxes owed by an employee to the IRS from their paychecks and submit them into a trust. The IRS requires this money to be paid on a periodic basis to the IRS, usually quarterly. If a corporation or individual uses this income instead of it remaining in trust, the IRS will give them a trust fund recovery penalty which is equal to the taxes withheld. For example, if XYZ Co. misused $10,000 of withheld taxes, the company would have to pay back the $10,000 plus a $10,000 penalty. This can add up in an organization with many employees. The IRS will conduct an investigation of a business and individuals when it suspects misdealing, and they will try to hold the relevant party accountable be it an administrator or an employee. 

[Last updated in August of 2021 by the Wex Definitions Team]