The Impact Unpaid Taxes Have on Your Credit Score

What Is a Tax Lien?

A tax lien is a tool used by the government to get a claim on your property for unpaid taxes. It's recorded on credit reports as a negative public record — the same category that includes situations like bankruptcies, foreclosures, judgments, collections, charge-offs, lawsuits, repossessions and more.

This lien then attaches to all of your current properties as well as the future assets you acquire while the lien is still active. Unpaid tax liens can remain on your credit report for 15 years following the filing date, while paid liens remain for seven years after the final payment has been made.

Who Can File a Tax Lien?

You can receive a tax lien from either the Internal Revenue Service (IRS) or from state taxing authorities. The IRS generally issues tax liens for outstanding tax debt in the amount of $10,000 or more, which means you want to keep your federal unpaid taxes bill below $10,000. Note, however, that there's no guarantee that this will keep a tax lien off of your credit report because the IRS is allowed to decide if they want to pursue tax liens under $10,000 as well.

How Do I Know if I Have a Tax Lien on My Credit Report?

There are a few ways to find out if a tax lien has been filed against your property if you haven't paid your taxes.

To start, you can visit your Secretary of State's website and search under "Lien Filings." If you know the tax lien number, great, otherwise you'll need to enter an individual's name, a business name, or property address. You won't be able to see complete details, but you can complete a written request to have a copy of the lien mailed to you.

You can also call the IRS Centralized Lien Unit at (800) 913-6050 and ask if there are any tax liens on your property.

What Should I Do with a Tax Lien on My Credit Report?

There are several things you can do if you have a tax lien on your credit report. First, you'll want to order your free, annual credit report from a trusted source like AnnualCreditReport.com.

Choose which best suits your situation:

• Get Your Questions Answered: You can contact the Taxpayer Advocate Service (TAS) to get help and specific questions answered.
• Appeal the Tax Lien: Disagree with the tax lien? An independent organization within the IRS — the Office of Appeals — can assist you with appealing the tax lien.
• Apply for a Withdrawal: You can apply for the IRS to completely withdraw the tax lien from your credit report using Form 12277, Application for the Withdrawal of Filed Form 668. This means you're still liable to pay the debt; however, your credit report is cleared.
• Apply for a Discharge from Federal Tax Lien: You can attempt to remove the lien from specific property so that you can sell it. To apply, fill out Form 783.
• Apply for Subordination: You can apply for a Certificate of Subordination, which moves other creditors ahead of the IRS. This can be helpful if you're trying to get another loan approved, such as a mortgage refinanced with a lower interest rate.
• Pay the Tax Bill: You can pay your delinquent tax bills in full, at which point the IRS will release the tax lien within 30 days. However, it's important to note that the record of having a federal tax lien can stay on your credit report for up to seven years. You can also set up an Offer in Compromise and the lien will be released once the agreed upon amount is paid in full.

It's important to remember how important your credit report really is. A tax lien on your credit report, while not insurmountable, can still pose a risk to your financial well-being if not handled correctly. Instead of just worrying about whether or not your credit report will score you a favorable car loan with a low interest rate, or your first mortgage, you now have potential employers using a version of your credit report to determine if you're a good fit for the job. With the help of the action steps above, you can set yourself up to get back on track toward financial success.