Legal Definitions - Trust fund recovery penalty (TFRP)

Trust Fund Recovery Penalty (TFRP) is a fine that the IRS charges to employers who knowingly or willfully withhold employee FICA and income taxes owed to the IRS. Employers are required to retain taxes owed by an employee to the IRS from their paychecks and submit them into a trust. The IRS requires this money to be paid on a periodic basis, usually quarterly. If a corporation or individual uses this income instead of it remaining in trust, the IRS will give them a trust fund recovery penalty which is equal to the taxes withheld.

For example, if XYZ Co. withholds $10,000 of taxes from their employees' paychecks but uses that money for other purposes instead of submitting it to the IRS, the company would have to pay back the $10,000 plus a $10,000 penalty. This can add up in an organization with many employees.

The IRS will investigate a business and individuals when it suspects misdealing, and they will try to hold the relevant party accountable, be it an administrator or an employee.

Overall, the TFRP is a serious penalty that serves as a deterrent for employers who may be tempted to misuse funds that belong to their employees and the government.