Home care is heading into the tightest reimbursement environment in a generation, and that is exactly when this particular mistake gets made. The One Big Beautiful Bill Act (OBBBA), signed July 4, 2025, set in motion roughly $911 billion in net Medicaid cuts through 2034 (CBO), froze new provider taxes, and phases the “safe harbor” provider-tax cap down from 6% to 3.5%. Analysts are forecasting reimbursement shortfalls of 3% to 7% for 2026–2027, Medicare home health took a net 1.3% rate cut for 2026, and the 80/20 Access Rule sits in limbo after CMS delayed enforcement. In one 2026 industry survey, 45% of home care leaders said Medicaid changes will have a very large or huge impact on their ability to operate.
When Medicaid managed-care checks run late and margins are already thin, a payroll comes due before the money lands. The tempting move — “we’ll make the tax deposit next week when the reimbursement clears” — is the single most dangerous corner an owner can cut. Here’s why an experienced advisor treats payroll tax deposits as untouchable, even ahead of the landlord.
The money you withhold is not your money
When you run payroll, part of every caregiver’s check never belonged to the agency. The federal income tax you withhold and the employee’s share of Social Security and Medicare (7.65%) are, in the IRS’s words, held in trust for the government. That’s the origin of the term “trust fund taxes.” You are a custodian, not an owner, of those dollars.
This is the distinction that trips people up. Your payroll tax bill has two halves:
- The trust fund portion — withheld income tax plus the employee’s 7.65% FICA share. This is the money at the center of everything below.
- The employer portion — your matching 7.65% FICA and your FUTA. This is your own liability, and it is not subject to the personal penalty described here.
Skipping a deposit doesn’t feel like taking money that isn’t yours — the cash is sitting in the same operating account as everything else. But legally, spending it on rent, vendors, or your own draw is spending the government’s money. [Your Company]’s tax-impound service moves the trust fund dollars out of your operating account the moment payroll runs, so there’s nothing to accidentally spend when a Medicaid check is three weeks late.
The Trust Fund Recovery Penalty: a bill that follows you home
If those withheld taxes don’t reach the IRS, Internal Revenue Code §6672 lets the government pursue the shortfall personally, through the Trust Fund Recovery Penalty (TFRP). This is not a slap-on surcharge — it equals 100% of the unpaid trust fund portion, assessed directly against the individuals behind the business. The corporate veil does not help. Two elements have to be present, and in a struggling business both are easy to satisfy:
1. You’re a “responsible person.” The IRS looks at substance, not job titles — specifically your status, duty, and authority over the money. Courts weigh factors like whether you’re an officer or owner, control the finances, can sign checks, decide which bills get paid, or hire and fire. That net is wide: owners, partners, sole proprietors, controllers, and even a bookkeeper with check-signing authority have all been held responsible. More than one person can be a responsible person for the same quarter.
2. You acted “willfully.” This is the part people misread. Willful here does not require bad intent, fraud, or any desire to cheat the government. It means you knew the taxes were due (or recklessly disregarded an obvious risk) and paid something else instead. The IRS’s own manual is blunt about the classic example: paying employees their net wages when there isn’t enough to cover the withholding is, by itself, a willful failure. So is paying any other creditor ahead of the deposit once you know it’s outstanding.
A few features make the TFRP uniquely unforgiving, and every owner should know them:
- It’s personal and joint-and-several. The IRS can assess the full 100% against several people at once and collect the whole amount from whichever one has assets.
- It survives bankruptcy. Unlike much business debt, a TFRP is generally non-dischargeable in Chapter 7 or Chapter 13. Closing the agency doesn’t erase it.
- There is no reasonable-cause exception. “We fully intended to pay once reimbursement came through” is not a defense to the penalty the way it might be for other IRS penalties.
- It reaches back and stays. The IRS generally has three years from the return’s due date to assess and ten years to collect — and it rarely lets these debts age out.
Note that this is separate from the business-level failure-to-deposit penalty under §6656, which escalates from 2% to 15% the longer a deposit is late. An agency that falls behind can face both: an escalating penalty on the company and a 100% personal penalty on its owners. This is precisely the exposure a reliable deposit process is designed to make impossible — [Your Company] files and remits on the correct monthly or semiweekly EFTPS schedule so a missed deadline never becomes a §6672 file.
Why home care is unusually exposed right now
The TFRP was practically written for the situation OBBBA is creating in home care: real businesses, thin or negative margins, and revenue that arrives on the payer’s timeline rather than the payroll’s. When a state-directed payment slips or a rate drops mid-year, an owner facing a Friday payroll has to choose what gets paid. Choosing caregivers over the IRS is completely understandable — and it is the textbook willful act.
Two specifics worth flagging for agency operators:
- “Catch up next quarter” is reckless disregard. Once you know a deposit was missed, continuing to run payroll and pay other bills without correcting it satisfies willfulness from that day forward. Intent to fix it later does not protect you.
- Board members of nonprofit agencies aren’t automatically safe. A volunteer director serving in a purely honorary role generally isn’t a responsible person — but a board member who is involved in financial decisions, has check-signing authority, and knows the taxes are unpaid can be. Nonprofit home care boards should understand this before a cash crunch, not during one.
An advisor’s blunt version: in a 3–7% shortfall year, the caregivers must be paid and the IRS must be paid, in that combined order — never one without the other. If your cash can’t cover both the net wages and the withholding, that’s a signal to call your lender or restructure, not to dip into the trust fund. [Your Company] can structure payroll so the tax liability is funded at the same moment wages are, removing the temptation entirely.
The outsourcing myth — and the one real exception
Here’s the honest part, because a payroll company that tells you otherwise is selling you something. Outsourcing payroll does not, by itself, transfer your TFRP liability. As the IRS spells out in Notice 784, you remain the responsible party even when a third party handles the deposits; if a provider fails to remit (or worse, absconds with the funds), the IRS still looks to the business owners first. A payroll service reduces your risk of error; it does not erase your legal responsibility.
There is one genuine exception. If your provider is an IRS-certified professional employer organization (CPEO), the CPEO can, by statute, assume liability for the employment taxes on wages it pays under a CPEO contract. That’s a real, meaningful shift — and it’s worth confirming in writing whether any provider you use is CPEO-certified or simply a reporting agent. If liability transfer matters to you, ask [Your Company] directly about our certification status and what our agreement does and doesn’t assume — a straight answer is the least you should expect.
Already behind? Move deliberately, not reactively
If deposits have slipped, the worst option is to do nothing and hope the next Medicaid batch fixes it. A few advisor-level moves:
- Designate payments to the trust fund portion. If the business still has any cash, voluntary payments can be specifically designated to the trust fund piece of particular quarters, which is the portion that becomes personal. This can shrink or eliminate individual exposure. (The IRS won’t apply payments this way on its own — you have to designate.)
- Respond to Letter 1153 on time. That letter proposes the TFRP against you and generally starts a 60-day clock to file a written protest with IRS Appeals. Appeals frequently resolves cases a revenue officer won’t. Missing the window forfeits your best, cheapest shot at challenging responsibility or willfulness.
- Fix the going-forward process first. The fastest way to make an old delinquency worse is to keep generating new ones. Get current-quarter deposits automated and reliable before anything else. This is the least glamorous thing [Your Company] does and the one that keeps owners out of a §6672 interview.
- Get qualified representation. These cases turn on documented facts about who controlled the money and who knew what, when. A tax controversy professional (CPA, EA, or tax attorney) is worth it once a Letter 1153 is on the table.
Protect yourself before the squeeze hits
- Treat withheld income tax and the employee 7.65% FICA share as untouchable — segregate or impound it every pay run.
- Confirm your EFTPS deposit schedule (monthly vs. semiweekly) and never let a payroll go out without the matching deposit funded.
- Know who in your organization is a “responsible person,” and make sure they understand personal exposure.
- If you outsource, get in writing whether your provider is a CPEO (assumes liability) or a reporting agent (does not).
- Build a cash buffer or credit line sized to cover at least one full payroll including withholding, so a late payer never forces the choice.
The reimbursement pressure of 2026 is real and largely outside any single agency’s control. Whether a late Medicaid check becomes a cash-flow headache or a decade-long personal tax liability, however, is entirely within it. If you’d rather that decision be made automatically — trust fund dollars set aside and deposited on time, every time — that’s the conversation [Your Company] exists to have.
This article is for general information and is not tax, legal, or accounting advice. If your agency is behind on payroll tax deposits or has received IRS correspondence, consult a qualified tax professional about your specific facts before taking action.
Sources
IRS guidance — Trust Fund Recovery Penalty (§6672):
- IRS, Employment Taxes and the Trust Fund Recovery Penalty (TFRP) (responsibility, willfulness, Notice 784, outsourcing): https://www.irs.gov/businesses/small-businesses-self-employed/employment-taxes-and-the-trust-fund-recovery-penalty-tfrp
- IRS, Trust Fund Recovery Penalty (personal liability overview): https://www.irs.gov/individuals/international-taxpayers/trust-fund-recovery-penalty
- IRS, Internal Revenue Manual 5.17.7, Liability of Third Parties for Unpaid Employment Taxes (trust fund portion; responsible-person and willfulness standards; nonprofit board members): https://www.irs.gov/irm/part5/irm_05-017-007
- IRS, Internal Revenue Manual 8.25.1, TFRP Overview and Authority: https://www.irs.gov/irm/part8/irm_08-025-001
- IRS, Outsourcing Payroll and Third-Party Payers / CPEO information (via Publication 926 and IRS.gov/OutsourcingPayrollDuties): https://www.irs.gov/publications/p926
Current home care funding context:
- McKnight’s Home Care, Home care providers under pressure: Navigating Medicaid and Medicare risks (OBBBA cuts, provider-tax phase-down, 80/20 delay, reimbursement shortfalls): https://www.mcknightshomecare.com/home-care-providers-under-pressure-navigating-medicaid-and-medicare-risks/
- AxisCare, The Impact of the One Big Beautiful Bill on Medicaid (CBO cut estimates; 2026 leader survey): https://axiscare.com/blog/the-impact-of-the-one-big-beautiful-bill-on-medicaid/
- Home Health Care News, “Death by 1,000 Cuts”: How Home-Based Care Leaders Navigate Reimbursement Pressure: https://homehealthcarenews.com/2026/05/death-by-1000-cuts-how-home-based-care-leaders-navigate-reimbursement-pressure/
- Healthcare Finance News, Home health agencies get a 1.3% payment decrease for 2026: https://www.healthcarefinancenews.com/news/home-health-agencies-get-13-payment-decrease-2026