§3505 — Title 26 Internal Revenue Code | U.S. Code

Summary

When a lender, surety, or other outside party pays a company's workers directly, that outsider becomes personally responsible to the government for the payroll taxes that should have been withheld from those wages, plus interest. Being the one who hands out the paychecks comes with the withholding duty, even if the outsider is not the employer. The same idea applies when an outsider gives an employer money specifically to cover payroll, knowing the employer cannot or will not pay the required taxes on time. In that case the outsider owes the unpaid taxes and interest, but the bill is capped at 25 percent of the money supplied. Anything the outsider pays counts toward what the employer owes.

Title 26, §3505

Internal Revenue Code — Source: USLM XML via OLRC

(a)For purposes of section 3102, 3202, 3402, and 3403, if a lender, surety, or other person, who is not an employer under such sections with respect to an employee or group of employees, pays wages directly to such an employee or group of employees, employed by one or more employers, or to an agent on behalf of such employee or employees, such lender, surety, or other person shall be liable in his own person and estate to the United States in a sum equal to the taxes (together with interest) required to be deducted and withheld from such wages by such employer.

(b)If a lender, surety, or other person supplies funds to or for the account of an employer for the specific purpose of paying wages of the employees of such employer, with actual notice or knowledge (within the meaning of section 6323(i)(1)) that such employer does not intend to or will not be able to make timely payment or deposit of the amounts of tax required by this subtitle to be deducted and withheld by such employer from such wages, such lender, surety, or other person shall be liable in his own person and estate to the United States in a sum equal to the taxes (together with interest) which are not paid over to the United States by such employer with respect to such wages. However, the liability of such lender, surety, or other person shall be limited to an amount equal to 25 percent of the amount so supplied to or for the account of such employer for such purpose.

(c)Any amounts paid to the United States pursuant to this section shall be credited against the liability of the employer.

Statutory Notes and Related Subsidiaries

Effective Date

Section applicable only with respect to wages paid on or after Jan. 1, 1967, see section 114(c)(1) of Pub. L. 89–719, set out as an

Effective Date

of 1966 Amendment note under section 6323 of this title.

§3505 Liability of Third Parties Paying or Providing for Wages

Summary

Title 26, §3505

Notes & Related Subsidiaries

Statutory Notes and Related Subsidiaries

Effective Date

Effective Date

Citations & Metadata