{{Unreferenced, date=June 2019, bot=noref (GreenC bot) A trust-fund tax is a special type of tax in which the person or entity who is liable for the tax obtains it by collecting it from another party and holding the tax until paid to the particular government to which it is owed. The party collecting the tax is presumed to hold it ''in trust'' for the benefit of the government to whom it is due. A trust-fund tax is a type of tax or debt where (absent a

personal guarantee A personal guarantee is a promise made by a person or an organization (the guarantor) to accept responsibility for some other party's debt (the debtor) if the debtor fails to pay it. In the case of a personal guarantee made by an individual on behal ...

) the management or responsible employees of a corporation or other entity with limited liability can be held personally liable for its non-payment. Trust-fund taxes include

fuel tax A fuel tax (also known as a petrol, gasoline or gas tax, or as a fuel duty) is an excise tax imposed on the sale of fuel. In most countries the fuel tax is imposed on fuels which are intended for transportation. Fuels used to power agricultural v ...

es,

sales tax A sales tax is a tax paid to a governing body for the sales of certain goods and services. Usually laws allow the seller to collect funds for the tax from the consumer at the point of purchase. When a tax on goods or services is paid to a govern ...

es,

excise tax file:Lincoln Beer Stamp 1871.JPG, upright=1.2, 1871 U.S. Revenue stamp for 1/6 barrel of beer. Brewers would receive the stamp sheets, cut them into individual stamps, cancel them, and paste them over the Bunghole, bung of the beer barrel so when ...

es, and certain

payroll tax Payroll taxes are taxes imposed on employers or employees, and are usually calculated as a percentage of the salaries that employers pay their employees. By law, some payroll taxes are the responsibility of the employee and others fall on the em ...

es. Generally, any tax required to be withheld from an employee's paycheck (or required to be matched by the employer and additionally paid) for which the employee is liable for (or employer, for matching contributions), such as the employee (and employer) portion of the United States

Social Security Welfare, or commonly social welfare, is a type of government support intended to ensure that members of a society can meet basic human needs such as food and shelter. Social security may either be synonymous with welfare, or refer specificall ...

and Medicare taxes, and any tax a merchant is required to collect from a customer, can be considered trust-fund taxes. A trust-fund tax has the special characteristic that if it is owed by a business entity such as a corporation or LLC, the management of the business entity can be held personally liable for payment of the tax if the entity fails to do so. The presumption is that the entity was supposed to withhold employee-owed payroll taxes or customer-owed sales taxes, and set those funds aside from the general funds of the entity, and not allow those funds to be spent for any purpose except payment of the trust-fund tax. Thus, in effect, failing to pay a trust-fund tax is considered the equivalent of management embezzling the funds that were due, and being personally liable for non-payment. Additionally, an employee with authority to sign checks for a business can also be held liable for non-payment of trust-fund taxes if they knew or should have known the business was liable for the tax, even if the business' owner instructed them not to pay the tax. Note that the prime characteristic of a tax being considered a trust-fund tax is that it was collected (or was supposed to be collected) from a third party, and failure to pay a trust fund tax by an entity allows the taxing authority to optionally look to the managers, responsible employees and potentially owners of the entity for the unpaid taxes. For example, if a corporation goes bankrupt, owing $100,000 in income tax, the managers of a business entity (

corporation A corporation is an organization—usually a group of people or a company—authorized by the state to act as a single entity (a legal entity recognized by private and public law "born out of statute"; a legal person in legal context) and r ...

limited liability company A limited liability company (LLC for short) is the US-specific form of a private limited company. It is a business structure that can combine the pass-through taxation of a partnership or sole proprietorship with the limited liability of a ...

, etc.) have no personal liability for this tax (it is owed by the entity on its own), but if it owed $500 in sales taxes the government to whom it is due can go after management as a personal liability for the tax (the entity was supposed to collect the tax in trust for that government, segregate the funds until due and pay it). In some cases non-payment of trust fund taxes can be more serious than non-payment of income or other taxes. In California, for example, it is a misdemeanor for the management of a business entity to willfully fail to remit trust-fund taxes such as any withholding from an employee's wages made pursuant to a state or local law, and if the amount of tax due exceeds $500 the class of crime becomes a felony (see California Labor Code Section 227). On the other hand, income tax evasion is punishable with a fine and/or imprisonment (see California Revenue and Taxation Code section 19706).

See also