Withheld Taxes are Held in Trust

The payroll taxes an employer holds back from an employee (the “Trust Fund”) never belongs to the employer, but rather it is held in a constructive trust for the benefit of the employee until they are deposited with the government.  Thus, every employer is a Trustee whose beneficiaries are their employees.  

As a Trustee, the employer has a fiduciary duty to properly report and turn over all withheld taxes.  If the employer fails to meet this obligation, it is considered to be a breach of fiduciary duty, and Congress has established harsh penalties to punish the responsible persons who willfully fail to collect or pay the withheld taxes.

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