NATIONALLY RECOGNIZED FEDERAL LAWYERS
What happens if you don’t pay employee withholding?
|Thanks for visiting Spodek Law Group. We’re a second-generation law firm managed by Todd Spodek – who has many, many years of experience handling complex federal cases. Our team has over 40 years of combined experience. You probably know us from high-profile cases like the Anna Delvey Netflix series, the Ghislaine Maxwell juror misconduct case, or the Alec Baldwin stalking matter. If you’re reading this article, you’re probably facing serious employment tax problems – and you need to understand what happens when businesses don’t pay over employee withholding to the IRS.
The short answer – the IRS treats this differently than almost any other tax problem. They call it theft. You withheld money from your employees’ paychecks that belonged to the federal government, you held it in trust, and you didn’t pay it over. That’s the IRS perspective in 2025. The consequences go far beyond typical tax debt – personal liability that pierces the corporate veil, criminal prosecution in some cases, and penalties that equal 100% of what you didn’t pay.
The Trust Fund Recovery Penalty Destroys the Corporate Shield
Most business owners think their LLC or corporation protects them from personal liability. Not with employment taxes. The Trust Fund Recovery Penalty allows the IRS to hold individuals personally liable for 100% of unpaid trust fund taxes – that’s the income tax, Social Security, and Medicare taxes withheld from employee paychecks. Your corporate structure means nothing.
The penalty equals the full amount of unpaid withholding, plus interest that keeps running. If your company didn’t pay over $200,000 in employee withholding – you personally owe $200,000 to the IRS, separate from what the business owes. They can come after your house, your bank accounts, your personal assets. The business being bankrupt doesn’t matter. The business shutting down doesn’t matter. You’re on the hook.
What makes someone liable? The IRS looks for anyone who was “responsible” for paying the taxes and “willfully” failed to do so. Responsible means you had authority over the company’s finances – signing checks, making decisions about which bills to pay, managing payroll. Willful doesn’t mean you intended to defraud the government. It just means you knew about the unpaid taxes and chose to pay other creditors instead. Paid your rent but not your payroll taxes? That’s willful. Paid suppliers to keep the business running? Still willful.
They Don’t Just Go After Owners
The IRS doesn’t limit the Trust Fund Recovery Penalty to company owners. They can assess it against multiple people – the CEO, the CFO, the bookkeeper, even outside accountants in some situations. If you had control over the money and knew about the problem, you’re potentially liable. In 2025, we’re seeing the IRS cast a wider net. They’ll interview employees, review bank statements, examine who signed checks. If three people could’ve paid the taxes and didn’t, all three get hit with the penalty.
Former employees get targeted too. You left the company two years ago? Doesn’t matter if the employment taxes were unpaid during your tenure. The IRS can come after you years later. We’ve seen cases where someone left a struggling business, thought they were in the clear, then got an IRS notice three years later demanding six figures in personal liability.
Criminal Prosecution Is Real
The IRS doesn’t just want their money – they want to make examples out of people. Employment tax enforcement remains a priority for IRS Criminal Investigation in 2025. Under federal law, willful failure to pay over employment taxes is a felony – up to five years in prison, fines up to $250,000 for individuals, restitution for the full amount owed. In May 2025, a California business owner received an eight-year prison sentence for failing to pay nearly $30 million in payroll taxes. That same month, a man in Fairfield was indicted for $2 million in unpaid employment taxes.
What triggers criminal investigation? Large amounts – we typically see criminal charges when unpaid taxes exceed $100,000. Using the withheld funds for personal expenses is a red flag. Lying to the IRS when they start asking questions compounds the problem. Filing fraudulent payroll tax returns showing you paid taxes when you didn’t – that’s another layer of criminal exposure.
The IRS views employment tax crimes differently than personal income tax evasion. With personal taxes, it’s your money you didn’t pay. With employment taxes, you took money from your employees’ paychecks – money that never belonged to you – and spent it. The government treats this like embezzlement.
The Penalties and Collection Actions Pile Up
Beyond the Trust Fund Recovery Penalty, the IRS adds failure to deposit penalties reaching 15%. Interest runs continuously – the rate for late 2025 is 7%, compounded daily. On a $100,000 employment tax debt, you’re adding about $7,000 per year in interest alone.
The IRS can file a federal tax lien against you personally. That lien attaches to everything you own – real estate, vehicles, bank accounts, future property. Want to sell your house? The IRS gets paid first. Want to refinance? The lien blocks it.
Bank levies happen fast. The IRS can freeze your business accounts, your personal accounts, your payroll account. They don’t need court approval – they just send the levy notice to your bank. Suddenly you can’t make payroll, can’t access your money. Revenue officers show up asking questions, interviewing employees, examining records.
Your Options Narrow Fast
Most employment tax problems start during cash flow crunches. The business struggles, you have to choose which creditors to pay. The IRS seems patient – they won’t find out for months. So you borrow from the withholding to survive. This is where businesses dig a hole they can’t escape.
By the time most business owners contact us at Spodek Law Group, they’re underwater. They owe multiple quarters of employment taxes, the IRS has started sending notices, sometimes revenue officers are already investigating. The IRS offers installment agreements, but you must stay current on all ongoing payroll tax deposits while paying down the old debt. Miss a single current deposit, the entire agreement defaults.
Some business owners try to ignore it. That doesn’t work. The IRS has 10 years from assessment to collect – ignoring it just gives them time to build their case and add more penalties.
Our Approach to Employment Tax Cases
At Spodek Law Group – we handle employment tax cases differently than other firms. We’ve represented business owners facing Trust Fund Recovery Penalties, individuals under criminal investigation for payroll tax issues, and executives who didn’t realize they were personally liable until the IRS came knocking. The stakes are personal – your assets, your freedom, your future.
Todd Spodek brings a second-generation perspective to federal tax matters. His father practiced law for decades, and Todd grew up understanding how federal prosecutors and IRS investigators build cases. We know their playbook. We’re available 24/7 because employment tax emergencies don’t happen during business hours – you might get served with a revenue officer’s summons on a Friday afternoon, discover the IRS levied your business bank account Monday morning, or receive a notice proposing the Trust Fund Recovery Penalty with 60 days to respond.
Many of the cases we’re famous for handling – are cases that others say were unwinnable. We represented Anna Delvey in a case that captivated national media and became a Netflix series. We handled the Ghislaine Maxwell juror misconduct matter that made headlines nationwide. If we’re taking your case, it’s because we believe we can make a difference.
If you’re facing six figures or more in liability, if the IRS is proposing the Trust Fund Recovery Penalty against you personally, if you have any hint of criminal investigation – you need experienced federal tax defense representation. The government has lawyers working against you. You need someone working for you.