How to Prevent a Tax Lien
You can prevent the IRS from filing a tax lien against you if you can pay the tax in full before the lien is filed. You can also prevent the lien by setting up a payment plan or installment agreement with the IRS if you cannot pay the tax debt in full at once. The IRS merely wants you to address your debts rather than ignore them.
Note: Paying in full as soon as possible is always the preferred option for taxpayers who want to protect their credit reputation. The IRS offers a short-term payment plan if you can come up with the money within 180 days, along with long-term installment agreement options. A tax lien will not be filed against you if you enter into one of these agreements, provided you do not default on payments.
Differences Between Liens and Levies
Some people use the terms “lien” and “levy” interchangeably, but they are entirely different collection measures. A tax lien is a document the IRS files with your local government to ensure its ability to recover the amount owed. The lien prevents you from selling your property without paying the owed amount, and the government can force the sale of the property to collect the owed amount.
A levy is the forced collection of unpaid taxes, typically by garnishing your wages or seizing your bank accounts.
Tax Liens, Public Records, and Credit Reports
Tax liens are a matter of public record because they exist in your local government’s records. For a long time, they appeared on your credit report. They were considered one of the most negative credit report entries and could harm your credit score.
However, tax liens were removed from all credit reports by 2018 and, generally, should not appear on your credit report.
Tips for Removing a Tax Lien from Your Credit Report
If you have a tax lien on your credit report, you can withdraw the lien and have it removed after settling the tax obligation if it was filed by the federal government. The IRS states it will remove the lien within 30 days after you have paid off the tax debt.
Note: You must have filed your tax returns for the previous three years to qualify for removal within 30 days, or you must show that you were not required to file returns according to federal rules. You should also be current on any estimated taxes and federal tax deposits you may owe.
Some taxpayers may also be able to withdraw the tax lien by entering into a direct installment agreement with the IRS. This allows them to automatically withdraw the tax payments from their bank account at specified intervals. You must owe no more than $25,000 to qualify and have made at least three consecutive payments. Other rules also apply.
Your state may offer a similar procedure for withdrawing a tax lien, but you will need to contact its revenue department to learn about the process and how to apply. The tax lien is likely to follow the normal credit reporting timeline if it is paid without a lien withdrawal procedure.
It is advisable to consult with a tax professional on the best way to proceed if you have issues with a tax lien to ensure all procedures are followed correctly.
Sources
The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts in our articles. Read our editorial process to learn more about how we fact-check and maintain the accuracy, reliability, and quality of our content.
The IRS
U.S. Taxes. “Understanding a Federal Tax Lien”.
Internal Revenue Service. “Additional Information on Payment Plans”.
Internal Revenue Service. “What is the Difference Between a Lien and a Levy?”.
Consumer Financial Protection Bureau. “A Fresh Look at Removing Public Records”.
Source: https://www.thebalancemoney.com/what-is-a-tax-lien-on-your-credit-report-960960
Leave a Reply