Employment taxes withheld by your employer are considered ‘trust fund’ taxes. I’m not entirely sure of its origin but I think the term trust fund tax is used because the US Treasury considers employment taxes withheld from your paycheck the US federal government’s money and the US Treasury is ‘trusting’ your employer to not only withhold the appropriate amount of employment taxes from your paycheck but to also promptly turn over this withheld money to the US Treasury. For example if you are paid on Friday and your employer withholds employment taxes from your pay check the employer MUST turn those withheld proceeds over to the US Treasury by the following Wednesday. If this does not happen the employer is considered guilty of theft of federal property and if the delinquency persists your employer’s ‘responsible party’ can indeed serve prison time. It is a serious offense.
Additionally your employer matches the amount of money withheld from your paycheck for employment taxes and this amount is considered the employer’s share of the total employment tax liability. The employer’s matching portion is a tax on the employer and not withheld or collected from someone else for payment to the government according to Internal Revenue Code 6671 and 6672 and as such can indeed be discharged in bankruptcy or by demonstrating insolvency.
If you are an employer and you become delinquent with your employment tax liability short of declaring bankruptcy or demonstrating insolvency another way to resolve the delinquency is to enter into an installment agreement with the IRS. Payments made to the IRS as part of an Installment Agreement however are not considered ‘voluntary’ and as such you cannot usually designate how the payments are applied as sited in the Internal Revenue Manual. Installment agreement payments are applied in the best interest of the US Treasury which generally means that your payments are applied to the oldest liability first and to interest and penalties first, before being applied to your actual tax liability.