If you choose to avoid your taxes, it may have a negative impact on your credit. Missing your taxes can lead to tax liens, which are serious derogatory marks that may occur when you neglect or fail to pay a tax debt. Here's some information and resources that may help if you're dealing with a tax lien on your credit report.
What is a tax lien and how does it affect my credit?
Tax liens are complicated and vary in form and details depending on your individual situation. In essence, a tax lien is the government's claim against all or some of your assets based on your failure to pay a tax debt on time. They may occur at the state or local level, or at the federal level.
These liens come with many possible personal and legal implications. When it comes to your credit, they're important to pay attention to because they'll usually show up as public records on your credit report. Like other types of public records, tax liens have a significant negative impact your score.
How do I remove a tax lien from my credit report?
First, it's important to know that unpaid tax liens, unlike other public records, may remain on your report indefinitely.
Because of this, the best way to get rid of a tax lien is to pay your tax debt in full, though even then the public record of the tax lien may remain on your credit report for seven years from the date of payment. If your credit report shows an outdated paid tax lien, you could file a dispute with the credit bureaus, just like you can for other credit report errors. You could also dispute a tax lien on your credit report if you have proof that you should not have been subject to it in the first place.
Another option that may apply in the case of a federal tax lien is to ask a credit bureau to remove your reported tax lien if it has been withdrawn by the IRS. For additional details on how withdrawal works, as well as additional information about federal tax liens in general, visit the IRS website.
Tax liens will significantly impact your credit history, so it's important to understand how they come about and what you can do to deal with them. Remember that since the laws regarding liens can vary, it's always smart to consult the proper resources, such as the IRS, your state or local tax authority, a tax attorney or a credit counselor. Take charge of your credit by paying your taxes promptly to avoid tax liens appearing on your credit report whenever possible.
About the Author: Charmaine Ng is the Communications Coordinator at Credit Karma. When she isn't writing her way through life, you can find her reading about the latest in entertainment and watching television almost every night of the week. Say "hi" @noodlemaine!
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