Trust-Fund Tax

Definition - What does Trust-Fund Tax mean?

A trust-fund tax is one that is paid to someone other than the person who it is ultimately owed to. The person who is paid the tax then collects it for a period of time before passing over all taxes collected during that time, for that purpose, to the agency that it is owed to.

An example of this is employers keeping taxes on employee earnings throughout the year, before sending them to the IRS once per year in bulk.

Justipedia explains Trust-Fund Tax

Another example of this type of tax is tax that is added on to fuel; the seller collects the tax when the fuel is sold and then sends it in bulk at regular intervals to the government. In this regard, the seller of the taxable item is also required to be a first-hand tax collector and is also responsible for ensuring that the taxes withheld are passed on to the rightful location.

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