Trust fund taxes (also known as payroll taxes) are FICA taxes paid by an employer on employee wages which include the Social Security and Medicare taxes. The employer is required to keep their share and the employee share of FICA taxes in a trust, and later the employer must periodically pay the taxes from the trust to the IRS, usually quarterly. If a corporation or individual uses this income instead of it remaining in the 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.
For more information, see payroll taxes.
[Last updated in September of 2021 by the Wex Definitions Team]