Avoiding the 100% Penalty: Key Factors in Determining Responsibility for Unpaid Taxes

ARTICLE | September 29, 2025

When a business withholds federal income tax or payroll tax from employee wages, it must turn those amounts over to the IRS. If the company fails to do so, individuals who had the power to ensure that these taxes were properly collected and remitted can be held personally liable. In some situations, the IRS can hold a “responsible person” accountable for the entire unpaid tax debt—an outcome commonly known as the 100% penalty, or Trust Fund Recovery Penalty. Understanding how this penalty works and knowing the factors the IRS uses to identify “responsible persons” are critical steps in avoiding the steep financial risks it poses.

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