What are Trust Fund Taxes?
Trust fund taxes include the Social Security, Medicare, and federal income tax a business withholds from its employees’ wages. These amounts are held in trust by the business until they are transferred to the IRS.
In other words, these taxes are effectively being paid by the employee to the IRS. The employer is just an intermediary responsible for facilitating the transaction.
When the employer fails to remit these amounts to the IRS, bad things can happen. First, the employer can face the failure to deposit penalty for unpaid payroll taxes if the payments are even one day late.