Find out exactly how much of your company's unpaid payroll tax the IRS can pursue against you personally under IRC 6672 — the withheld tax only, never the employer share.
| Deposited | Employee Income Tax | Employee FICA | Trust Fund | 6672 Liability | Interest | Total |
|---|---|---|---|---|---|---|
| $28,000 | $9,000 | $6,120 | $15,120 | $15,120 | $1,588 | $16,708 |
| $15,000 | $5,000 | $3,400 | $8,400 | $8,400 | $588 | $8,988 |
| $42,000 | $15,000 | $9,180 | $24,180 | $24,180 | $3,385 | $27,565 |
| $60,000 | $21,000 | $12,852 | $33,852 | $33,852 | $1,975 | $35,827 |
In each row the employer's matching FICA share is excluded from personal liability, and interest is computed at 7% annual on the trust fund amount for the stated number of months (18, 12, 24 and 10 months respectively). The trust fund portion consistently runs about 71% to 73% of the total unpaid payroll tax — that ratio is set by the FICA split, not by the size of the business.
When you run payroll you hold two different pots of money for the government. The first is money you withheld from your employees: federal income tax, the employee's 6.2% Social Security and 1.45% Medicare. That money was never yours — you are a trustee holding it on the government's behalf. The second pot is your own matching FICA contribution and federal unemployment tax, which are the employer's own tax bill.
The Trust Fund Recovery Penalty applies only to the first pot. That distinction is why the penalty is roughly 71% of the unpaid payroll tax in a typical case rather than 100%. The employer's share is still owed by the business, but it is collected through normal assessment, not through personal liability.
Responsibility requires only the authority to pay, not the exercise of it. A person can be liable even if another officer actually made the decision, and liability is not reduced because someone else was also responsible — the IRS can collect the full trust fund amount from any one responsible person, then leave them to pursue contribution from the others.
| Situation | Usually willful? | Why |
|---|---|---|
| Paid vendors instead of the payroll deposit | Yes | Knowingly preferred other creditors over the government |
| Used withheld tax to make payroll | Yes | Classic 6672 pattern, even with good intent |
| Relied on a bookkeeper who concealed non-payment | Sometimes | The taxpayer cannot delegate the duty, but reasonable reliance can support reasonable cause in some circuits |
| Business closed and funds exhausted before payroll ran | Sometimes | No funds were available to withhold in the first place |
| IRS mishandled a signed installment agreement | Often no | Reasonable cause when you relied on IRS assurances in writing |
The penalty is assessed personally against you, not the company, so it survives the business closing or filing bankruptcy. It can only be discharged in personal bankruptcy if the conduct was not willful. You have 60 days from the date of the Letter 1153 to appeal to the IRS Independent Office of Appeals, and you can pay a divisible portion and file a claim for refund to litigate in district court. The two real defences are not a responsible person and reasonable cause — the second is a high bar and generally requires a documented illness, a death in the family, or reliance on professional advice you fully disclosed to.
The Trust Fund Recovery Penalty is the only common IRS penalty that jumps the corporate veil. If your company withheld payroll tax and never sent it in, the IRS can assess that withheld amount against you as an individual — and it does not disappear if the company closes, files bankruptcy, or has no assets left. In our first example the business owner is personally on the hook for $15,120 of a $21,240 payroll tax bill, plus $1,588 of interest.
Withheld tax is not a debt — it is money the employer held in trust. Because the government never received its own funds, Congress made the penalty 100% of the trust fund amount rather than a percentage, and it is not dischargeable in bankruptcy when the failure to pay was willful. The IRS also has a strong incentive to investigate: the trust fund portion is often the only part of a failed business's payroll liability that can actually be collected, because the responsible people are still earning.
Respond within the 60-day appeal window rather than ignoring it. Request the IRS file, including the Form 4183 report the revenue officer prepared, so you can see which facts the IRS relied on. Then separate the two questions: were you a responsible person, and was the failure willful? Building a record on either one is worth more than negotiating a payment plan, because the penalty is far easier to defeat before assessment than to abate after it.
⚠️ Important: This calculator estimates personal liability for the trust fund portion of unpaid payroll tax under IRC 6672. It is not legal or tax advice. The IRS makes the responsible-person and willfulness determinations case by case, interest is computed here at an illustrative 7% annual rate, and additional failure-to-deposit penalties may apply to the business. Consult a tax attorney before responding to a Letter 1153.