Taxes & Entities

Payroll Taxes

Payroll taxes include money you withhold from employees' paychecks — trust fund taxes that are physically in your account but are not your money, held in trust for the government — and treating "money I'm holding" as "money I own" is a category error that, with these taxes, can pierce your liability shield and destroy you personally.

  • Intermediate
  • 10 min total
  • 12 chapters

What decision this helps you make: How to handle payroll taxes — especially the withheld trust fund taxes that sit in your account but aren't yours — so a cash crunch never becomes personal, uncapped, potentially criminal liability.

What this topic is

The taxes tied to paying employees — employer FICA and unemployment taxes, plus the income and FICA taxes withheld from employees' pay and held in trust for the government.

Why it matters

The withheld "trust fund" taxes are in your account but aren't your money — and failing to remit them pierces your liability shield to hold you personally (even criminally) liable.

Who should learn it

Anyone who employs people or plans to, and anyone learning the crucial difference between money you hold and money you own.

What you will understand

  • Payroll taxes include taxes withheld from employees' pay
  • Withheld trust fund taxes belong to the employee/government, not you
  • The money is in your account but is not your money
  • Non-remittance pierces the shield — personal, even criminal, liability

Prerequisites

Common misconception

"The payroll tax money is in my business account, so in a cash crunch I can borrow it temporarily and pay it back." No — withheld trust fund taxes are not your money; you hold them in trust. "Borrowing" them is treating money you hold as money you own, and it triggers a penalty that pierces your LLC or corporation to make you personally, uncapped-ly liable.