How Long Does a Tax Lien Stay on a Credit Report?

A tax lien may be one of the indicators that a creditor may consider before approving a loan to someone. If you fail to pay any of your taxes, these will surely reflect in your credit report. Ignoring the notice of payment from the government is not good. This is a terrible sign of your background, especially when an employer or a bank checks your credentials.

The government can still accept late tax lien payments, but it comes with a price. This is because interest dues and penalties are guaranteed. Moreover, a bad credit report is expected with unpaid tax liens as well. 

Read further to learn more about tax liens: How it affects your credit reports, whether it can be removed from your credit report, and some tips on how to handle your tax liens before paying them off:

How Does a Tax Lien Affect my Credit?

Unless you don’t have any plans to buy or do something in the future, a tax lien will not affect your credit report. But we all know that’s impossible. One way or another, an unpaid tax lien will affect your credit.

Creditors avoid people who have unpaid tax liens as they see this as a red flag. They will not trust someone who has outstanding liens to the Internal Revenue Service (IRS). Lending money to someone is a huge leap of faith and a much bigger risk, so you want to do it with someone who can guarantee that they can pay you back.

A tax lien may not be a bad thing on a credit report. However, if left unpaid, your credit scores can go down by three digits. Not only that, but it will have a negative impact on your credit report.

A credit report still depends on your bank history and payment behavior. If you have been a long-time client with only one delinquency, then the impact on your credit history won’t be much. But if your credit history is only short with many delinquencies, then expect a much negative impact on you.

More than a bad-looking credit report, an unpaid tax lien will add up its interest penalties and fees. Leaving this over time will leave you a hefty amount of money. Hence, a tax lien should be avoided as this may bring damages to your finances.

In times this can’t be dodged, you may contact the nearest taxing authority in your place. They might have payment programs or plans that might be helpful for you. This will help you pay your lien little by little without acquiring new fees and penalties. It’s the best option rather than just leaving it unpaid.

When Will Tax Liens be Removed From my Credit Report?

A tax lien can appear on your credit report for as long as ten years, which is a very long time. The average time that a tax lien can appear is seven to ten years after filing. 

With this, you can imagine how extremely damaging unpaid tax liens could do to your credit report. The best-case scenario for this situation is to pay the tax and interests immediately. 

On rare chances, credit bureaus can remove your unpaid tax lien on your records if left unpaid after ten years. But this is not always the case. So it’s still best to avoid tax liens as much as possible. 

The paid tax liens are removed after seven years in your credit report, given that you’ve already paid it with all the interest fees and penalties. 

If a paid tax lien still appears in your credit report after seven years, you just need to file for a dispute to credit bureaus. They will verify its status and remove it within 30 days upon verification.

Is There a Way of Removing a Tax Lien Before Paying it Off?

To simply put, it depends on the payment plans or programs that the credit bureaus offer at the time. These plans are specifically created to help taxpayers pay off their debt to the government. For example, the IRS allows taxpayers with a tax lien to file for a request of withdrawal of the public notice of a lien. 

Here are the steps in applying for a withdrawal of public notice in IRS:

  • Fill out Form 12277. 
  • Apply for Withdrawal of Filed Form 668. 
  • Notice of Federal Tax Lien. 

These forms can be used in withdrawing for paid and unpaid tax liens. But remember that outstanding liens still need to be paid off. Withdrawing the notice of public notice does not get you off from paying your debts. 

There are also qualifications that credit bureaus look into before granting payment plans to a taxpayer. Here are some:

  • A good record of tax payments in the last three years. 
  • On-time payments on the current taxes you’re paying. 
  • The debt should be less than $25,000.

Once you’re qualified, you have to pay off your debts in full under certain conditions with automatic payments. 

It is not meant to be a punishment because the government just wants your debt to be paid off by you. Instead, the interest fees and penalties keep on increasing. 

Notifying the credit bureaus in the completion of Form 12277 is necessary. These kinds of payment loans and programs are designed to make sure that 

taxpayers shall pay their taxes in due diligence. 

Furthermore, a good and viable reason shall be stated on why you are withdrawing the public notice. Most times, the reason that the tax lien is merely decreasing the value of your credit report is enough. This is understandable given that financial issues arise with the continuous increase of interest penalties. 

Overall, the risk of not paying your tax lien is not worth the 7 to 10 years stay in your credit report. So think twice before ignoring your tax dues. 

When you face a problem of unpaid tax liens, you must exhaust all your options. Credit bureaus will help you, so you should first contact them to consult what to do with your situation. 

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