Do Tax Liens Impact Your Credit & How to Fix A Public Record

By Ana Gonzalez-Ribeiro, MBA, AFC®
Published on: 11/23/2022

When you fail to pay off federal or state tax debts, you may incur a tax lien from either the IRS or state government. A tax lien gives the government a legal claim to your assets.

While the major credit bureaus stopped including tax liens and other civil judgments on credit reports in 2018, the government files a tax lien as a matter of public record.[1][2] Because tax liens don’t appear on credit reports, they also do not impact your credit score. This post guides you through how to clear the public record and explains how tax liens impact you.

What is a tax lien?

If you have an unpaid tax bill or owe back taxes to the government, you could have a tax lien against your property, including financial and real estate assets.[2]

When you don’t pay your taxes, the IRS or state government sends you a bill demanding payment for your tax debt. If you don’t submit payment, you get at least one more notice from the IRS, and interest begins to accrue on your debt.[2]

If you don’t pay the debt in time, the IRS files a Notice of Federal Tax Lien. Although not part of your credit history, this public document alerts creditors that you have a lien against your property, which can serve as a red flag against them lending you money.[2]

Tax liens no longer appear on credit reports

In 2015, the three major credit bureaus (also known as credit reporting agencies) — Experian, Equifax and TransUnion — introduced the National Consumer Assistance Plan (NCAP). This plan was created to make it easier for consumers to correct errors on free credit reports.[1]

As part of the NCAP, the credit bureaus decided to stop reporting tax liens and to begin removing tax liens from credit reports beginning in April 2018.[3] Although this comes as good news in terms of your credit report, the policy could be reversed at any time.

Plus, the IRS still files tax liens among public records per state law, even if the liens don’t show up on personal credit reports. Having a tax lien on public record can make it difficult to open credit accounts, buy property, sell property, and more.[2] Since lenders can search for tax liens when assessing your application, your tax lien may hurt your chance of obtaining credit.

Changes to credit reports because of the National Consumer Assistance Plan

Tax liens don’t impact your credit score

While tax liens don’t impact your credit score, they are a matter of public record and can hurt your chances of getting a mortgage or a loan.[2] A lender may search for tax liens as part of its due diligence when evaluating your credit or loan application. So while your tax lien won’t impact your score, it may be a factor in a lender’s assessment of whether you’ll pay back the credit extended to you.

How tax liens negatively impact you

Tax liens can have a number of adverse consequences affecting your assets, access to loans, and even your business, including:[2]

  • Attaches to all assets: A federal tax lien covers your financial assets and everything you own, including anything you might acquire while the lien remains in effect.
  • Limits your ability to apply for credit and/or loans: Because an IRS lien is a matter of public record, potential lenders can see it. The IRS also notifies existing creditors that the government has first claim on your property, making it unlikely that you will be able to secure any additional credit from those lenders.
  • Affects business property: An IRS lien doesn’t just affect a taxpayer’s personal property, but business property, too, including accounts receivable.
  • Doesn’t discharge in bankruptcy: Bankruptcy can eliminate most private debt, but it may not protect you from an IRS lien.

How do I find out if I have a tax lien against me?

If you want to know whether you have a tax lien against you, you can access your tax records via an online account.[3] You can create a new account with ID.me.[4] This account allows you to view your balance, create payment plans, and view digital copies of notices from the IRS.[3]

Statutes of limitations on tax liens

A federal tax lien begins as soon as the IRS makes the assessment, which is triggered by the IRS sending a first notice. This notice demands payment for outstanding tax debts and will result in a tax lien if the debts are not paid in full in response. The lien remains in place until you pay the amount you’ve been assessed or you reach the 10-year collection statute expiration date (CSED).[5]

The IRS generally gets 10 years after the assessment to collect the tax liability. After the CSED has been reached, the lien becomes unenforceable, with a couple of exceptions.[5]

Federal tax lien vs. state tax lien

In addition to a federal tax lien, you may face a state tax lien against your property. Both federal and state governments can put a lien on your property over failure to pay back taxes. Liens can apply to income taxes. Local governments can also place a lien on your property if you’ve failed to pay your property taxes.

Important features of federal tax liens compared to state tax liens include:

  • Federal tax liens take priority over state tax liens to collect tax debt unless the federal tax lien was filed later.
  • Federal tax liens follow the same laws, established by federal statute.
  • State tax liens differ based on specific state laws.
  • Bankruptcy may not protect you from a federal tax lien.[2]

Because state tax liens depend on each state’s laws, important rules, such as the length of the statute of limitations and what property the tax lien can attach to, varies depending on the state. So understanding your state tax lien means knowing the law of the state in which the lien is attached.

Tax lien vs. tax levy

A lien and a levy refer to two different things: A lien establishes that the federal government has an interest in your property when you haven’t paid a debt, but a levy actually seizes your property as a way to settle the debt.[6] In short, unpaid tax liens can lead to levies.

Tax levies vs. tax liens

Before the IRS levies property, these requirements typically need to be met: [6]

  • The IRS has sent you a Notice and Demand for Payment (tax bill).
  • You have failed to pay the tax.
  • The IRS has sent you a Final Notice of Intent to Levy and Notice of Your Right to a Hearing. Also known as a levy notice, the IRS delivers this at least 30 days before the levy takes place. It may be delivered in person, left at your home or workplace or sent via certified mail to your last known address, with return receipt requested.
  • The IRS has sent you a notice informing you that the IRS may contact designated third parties (mentioned in the notice) about determining or collecting your tax liability.

Because tax liens are part of the public record per state laws, having a tax lien on your credit can impact your ability to buy property, take out loans, get credit cards, and more, including refinancing. If you want to refinance your mortgage, you won’t be able to do so until you’ve paid the taxes you owe.[7]

Plus, even if you file for bankruptcy protection, your tax debt or lien may continue afterward.

Get rid of a tax lien by paying your debt

The easiest way to get rid of a lien is to pay your tax debt in full. If you can’t pay it in a lump sum, there are short-term and long-term payment plan options.

A short-term payment plan requires you to pay the amount owed within 180 days and does not have a setup fee. A long-term plan requires monthly payments. If you agree to a Direct Debit Installment Agreement (DDIA) where payments are automatically taken from your checking account, there is a $31 setup fee for applying online or a $107 setup fee for applying by mail, phone or in-person. The fee is waived for low income taxpayers.[8]

Once you have paid your entire debt, the IRS releases your lien within 30 days.

There are more complex ways to get rid of a lien including discharge or property, withdrawal and subordination. Consult the IRS’s website for more details.[2]

IRS payment plan options

Keep tabs on all your records

The IRS recommends that you keep your tax returns for three years from the date you filed your original return, or longer in other situations.[9] These records may help you navigate a tax lien or other tax issues.

Tax liens can feel stressful and challenging. If you’re struggling to navigate a tax lien, consult with a licensed Tax Accountant or Tax Attorney.

Disclosure: Self does not provide tax advice. Speak with a professional Tax Accountant or Tax Attorney for advice on your specific situation.

Sources

  1. Consumer Financial Protection Bureau. “Public Records,” https://files.consumerfinance.gov/f/documents/cfpb_consumer-credit-trends_public-records_022018.pdf. Accessed April 7, 2022.
  2. IRS. “Understanding a Federal Tax Lien,” https://www.irs.gov/businesses/small-businesses-self-employed/understanding-a-federal-tax-lien. Accessed April 7, 2022.
  3. IRS. “Withdrawal of Notice of Federal Tax Lien,” https://www.irs.gov/irm/part5/irm_05-012-009. Accessed April 7, 2022.
  4. IRS. “Sign In or Create a New Account,” https://sa.www4.irs.gov/secureaccess/ui/.
  5. IRS. “Legal Reference Guide for Revenue Officers,” https://www.irs.gov/irm/part5/irm_05-017-002. Accessed April 8, 2022.
  6. IRS. “What is a levy?” https://www.irs.gov/businesses/small-businesses-self-employed/what-is-a-levy. Accessed April 8, 2022.
  7. IRS. “What if there is a federal tax lien on my home?” https://www.irs.gov/newsroom/what-if-there-is-a-federal-tax-lien-on-my-home. Accessed September 8, 2022.
  8. IRS. “Additional Information on Payment Plans,” https://www.irs.gov/payments/payment-plans-installment-agreements. Accessed April 8, 2022.
  9. IRS. “How long should I keep records?” https://www.irs.gov/businesses/small-businesses-self-employed/how-long-should-i-keep-records. Accessed April 8, 2022.

About the author

Ana Gonzalez-Ribeiro, MBA, AFC® is an Accredited Financial Counselor® and a Bilingual Personal Finance Writer and Educator dedicated to helping populations that need financial literacy and counseling. Her informative articles have been published in various news outlets and websites including Huffington Post, Fidelity, Fox Business News, MSN and Yahoo Finance. She also founded the personal financial and motivational site www.AcetheJourney.com and translated into Spanish the book, Financial Advice for Blue Collar America by Kathryn B. Hauer, CFP. Ana teaches Spanish or English personal finance courses on behalf of the W!SE (Working In Support of Education) program has taught workshops for nonprofits in NYC.

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Our goal at Self is to provide readers with current and unbiased information on credit, financial health, and related topics. This content is based on research and other related articles from trusted sources. All content at Self is written by experienced contributors in the finance industry and reviewed by an accredited person(s).

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Written on November 23, 2022
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