The Lowdown on Tax Liens

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The Lowdown on Tax Liens

If you have an outstanding debt that you owe to the IRS, it may wind up on your credit report in the form of a tax lien. Here's a brief overview of how tax liens can impact you, and what you can do about it.

What is a tax lien?

A tax lien represents the government's legal claim on your property for not paying a tax balance you owe to them. Tax liens can negatively impact your credit score and likely make it difficult for you to be approved for credit or loans.

Where is a tax lien shown on a credit report?

A tax lien usually shows up in the public records section of your credit report.

What is the amount due?

The amount listed on your tax lien is typically from the time the lien was originally filed. If you want to see an updated payoff amount to keep a record for yourself or to give to third parties, you can get that by contacting the IRS Centralized Lien Operation group at (800) 913-6050.

What can you do if a tax lien appears on your report that's not yours?

If the lien doesn't belong to you, you can go through the dispute resolution process to request that it be removed from your credit report. This could mean having to make a request through each of the credit bureaus depending on which credit reports list your tax lien. They should look into the issue within 30-45 days.

What can you do if you paid off a tax lien, but it appears on your report as unpaid?

If the lien has been paid but that is not reflected on your credit report, you can go through the dispute resolution process with the credit reporting agencies and submit a copy of the "Certificate of Release of Federal Tax Lien" as well to request an update to their records.

If you pay the debt you owe, the IRS will likely release the lien within 30 days of payment. This should be marked as paid, but will probably not be removed from your report right away as even paid liens may remain listed as informational items for about seven years (unpaid liens may stay for ten years). Removing a paid lien from your credit report will likely have a positive impact on future credit applications, so it is in your best interest to go through the withdrawal request process if you qualify.

How do I request that a lien be withdrawn from my credit report?

If the lien is valid, there may be an opportunity to have it removed from your report if you meet the criteria. If you have paid the debt, you also need to be up to date with your current year estimated taxes (and deposits) and with filing your taxes the last three years. It is also possible to have the lien taken off your report even before the debt is paid. To do this, you must be paying your debt via direct debit installment agreement and the balance must be below $25,000. A complete set of requirements may be found on the IRS Website.

Are there any forms that I need to file to request the withdrawal?

If you qualify to have the lien withdrawn, you can complete and send Form 12277 (Withdrawal Request) to the IRS. If approved, you will likely receive a Withdrawal Notification Form 10916(c) that may be shared with third parties to have the lien lifted. The IRS can notify credit reporting agencies or other third parties if you request this in writing.

Bottom Line

Overall, you can help reduce the credit impact of a tax lien by paying the debt in full, making a good faith effort to be timely with other tax and payment remittances, and then requesting its removal once you are able. Managing your tax liabilities and regularly monitoring your credit are two best practices for avoiding the process altogether.

About the Author: Meredith Johnson is a dynamic financial professional. Her unique background as both a CFP® and CPA gives her the ability to combine financial planning with tax strategy. An avid community volunteer and trail runner, she still finds time to hone her craft beer collection.

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All Comments

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Top Contributor
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8 People Helped

What about a state tax lien? I have one I'm paying off from 2003, with a balance of $1600. It has actually disappeared from my TU report, but it remains on the others, which is odd in and of itself. 

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366 Contributions
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Helpful to 1 out of 1 people

It varies state to state. Here is the process for California -

Top Contributor
10 Contributions
1 Person Helped

Ca is really a pain, they levied against me i proved them wrong, put money back into my account, but you have to petition them to take lein off credit report, wth FTB screw up it should come off automatically

Credit Karma Team
Top Contributor
2949 Contributions
5358 People Helped

Sorry to hear about this. Have you filed a dispute with the credit bureau yet? 

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