If you owe back taxes, the IRS does not report the debt to credit agencies. In other words, your credit report does not show any balance due for taxes. However, if the IRS places a federal tax lien for non-payment of back taxes, the lien will appear on your credit report.
Usually, the IRS files a lien for amounts of $10,000 or more. Once the lien is filed, your creditors are informed of the IRS’ claim, which substantially reduces your ability to obtain credit in the future. To limit the damage to your credit score due to unpaid taxes, seek the assistance of RMS Tax Consulting at (520) 448-3531 and speak with Enrolled Agent Richard Schickel for a free consultation.
What is a Lien?
A lien is the government’s claim to a taxpayer’s property. A lien can be placed on real estate, personal property or financial assets; anything the individual owns or takes possession of for the life of the tax debt. A lien is placed after the taxpayer:
- Does not respond to the IRS notices regarding the payment of tax debt, and/or
- Avoids or refuses to pay the tax debt
The IRS sends various notices to inform the taxpayer of the amount owed.
How a Lien Impacts Your Credit Report
A lien limits your financial freedom. When a lien is placed, you will be unable to sell, rent, take a loan or get credit against property until the tax debt is resolved. Along with placing a lien, the IRS also files a public notice to alert creditors of your unpaid taxes. This impacts your ability to rent or purchase houses, cars, etc. A lien may also negatively affect your employment opportunities, as more companies are reviewing the credit reports of prospective employees.
To avoid damaging your credit rating, a tax debt should be resolved as quickly as possible. The IRS offers a variety of ways to resolve tax debts, suited to the different paying capacities of taxpayers. Contact RMS Tax Consulting at (520) 448-3531 and speak with Enrolled Agent Richard Schickel for a free consultation and to review your options.
Removing a Lien from Your Credit Report
The fastest way to get a lien removed from your credit report is to pay the tax debt in full. When the IRS receives the full debt amount (including penalties and interest), they typically remove the lien within 30 days of the date of payment.
Should you opt to pay your tax debt over an extended timeframe, you can apply for an Installment Agreement. An Installment Agreement allows payments in fixed monthly installments. For debt reduction, the Partial Payment Installment Agreement may be a viable option.
Other resolutions may be available, depending on your circumstances. The “withdrawal” may be an option where the IRS will remove the public Notice of Federal Tax Lien. This is subject to you using the Direct Debit Installment Agreement to pay your unpaid tax debt. For the best option for you and your financial circumstances, contact RMS Tax Consulting at (520) 448-3531 and speak with Enrolled Agent Richard Schickel for a free consultation.