If you’re like most Mount Vernon business owners I talk to, you’ve had a month (or five) where everything hits at once. Rent, vendors, staff, inventory… some weeks, it all comes due before the revenue shows up.
And in those moments, payroll can start to feel like a checklist item instead of the legal responsibility that it really is — and when you can be vulnerable to making payroll tax mistakes.
But part of my job is to help you think a few steps ahead when it comes to taxes as well as how to avoid those mistakes. And one of the most dangerous traps I’ve seen, time and again, is what happens when business owners “borrow” from their payroll tax deposits to float other expenses.
When you withhold payroll taxes — Social Security, Medicare, federal income tax — that money belongs to your employees. Legally, you’re just holding it in trust until you pass it along to the government.
So when you use those funds for something else, even temporarily, it’s not just a late payment. It’s considered payroll tax fraud. And the consequences of payroll tax mistakes like this can be brutal.
The IRS has a penalty specifically designed for this situation: the Trust Fund Recovery Penalty (TFRP). And it doesn’t just apply to your Westchester County business — it applies to you personally. That means your personal bank account, your home, your savings could all be on the line, even if you operate under an LLC or corporation. That liability protection you thought you had? It doesn’t hold up here.
In fact, in 2023 alone, the IRS assessed over 752 million dollars in Trust Fund Recovery Penalties. And they’re not letting up anytime soon on these types of payroll tax mistakes.
Why the harsh treatment? Because these funds are meant to protect employees — the people who rely on Social Security and Medicare benefits being there when they need them. When those deposits don’t go through, it’s not just a bookkeeping issue. It’s personal, to them and to the IRS.
Now, if you’ve found yourself in this spot—either by choice or by circumstance—you’re not alone. And you’re not doomed. But you do need to act quickly and strategically.
1. Don’t wait. The longer payroll tax mistakes go unaddressed, the more penalties pile on. If you’re behind, we can look at payment plans, negotiate for penalty relief, and take steps to protect what matters most to you. There are solutions, but only if you get ahead of the enforcement.
2. Treat payroll taxes like a non-negotiable line item, just like rent or utilities. That means budgeting for it in advance (even when it’s hard) and never using it to float short-term expenses.
3. Don’t try to handle this on your own. This isn’t a DIY moment. If you’ve fallen behind or you’re worried about your payroll tax mistakes coming to light, call me. I can help you navigate what’s next, explain your options clearly, and represent you if the IRS is already involved.
This kind of mistake doesn’t mean you’re a bad business owner—it just means it’s time to get some help.
Let’s handle it together, before it gets any worse.
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Here to think about the things you’d rather not,
Lynn Karam