Unpaid Withholding Taxes Can Mean A 100% Personal Penalty

If an employer fails to pay withholding taxes to the federal government, the IRS has the power to assess a 100% personal penalty against corporate officers, partners, or any company employee whose responsibility is to collect, report, or pay the withholding tax.

The 100% personal penalty is equal to the amount of unpaid tax and virtually no one who plays a role in running the company can escape the consequences of failing to pay withholding taxes.  The penalty can be imposed against the individuals who run the business or sign company checks.  It has even been levied against individuals who had the authority to decide which creditors should be paid, against individuals who were directors of the corporation but not employees, and against individuals who resigned from the company before the withholding tax was due.

The 100% penalty is imposed in cases of “willfulness”, which means a “willful” failure to withhold or pay the tax.  It does not require “evil intent” and is simply the intentional disregard or indifference to employer withholding tax requirements.

Although the penalty is not assessed if the employer pays the tax, it gives the IRS a very effective means to collect unpaid withholding taxes.