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What Is a Tax Lien?

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What Is a Tax Lien?

The federal government takes it very seriously if you fail to pay your taxes. And it can be serious for your credit reports and credit scores, too.

Not paying Uncle Sam his due could result in a tax lien being placed on your assets. A federal tax lien is the U.S. government’s legal claim against your property when you fail to pay a tax debt.

Once you fail or neglect to pay a tax liability on time, the IRS files a public document, a notice of federal tax lien, alerting creditors that the government has a legal right to your property.

A tax lien means bad news for your credit. Consumers with no other negative items who have a tax lien appear on their credit reports could see their credit scores plummet by 100 points or more.

A tax lien stays on your credit report for seven years from the date it is paid. And a tax lien could impact your credit for even longer if you should wait to resolve your tax liability.

Fortunately for consumers, the IRS made some changes to its policies concerning tax liens in early 2011 including:

  • Increasing the dollar threshold when liens are generally issued to $10,000.
  • Making it easier for taxpayers to obtain lien withdrawals after paying a tax bill.
  • Withdrawing liens in most cases where a taxpayer enters into a Direct Debit Installment Agreement.

These changes mean it is possible to get a tax lien removed from your credit reports if you’ve paid it before the normal seven-year reporting period is up, or while you still owe taxes if you are paying them back through an installment agreement with the IRS. To have a tax lien withdrawn, you must file Form 12277, requesting the lien be withdrawn. If your request is accepted, the IRS will file a notice of the withdrawal and send you a copy.

You also may request in writing that the IRS notify credit reporting agencies and creditors and your financial institutions about the tax lien withdrawal. Or you can send the notice of withdrawal from the IRS to the credit reporting agencies yourself.

Tax liens can have a major impact on your credit, appearing as a negative account on your credit report. To see how an unpaid tax bill may be affecting your credit, use’s free Credit Report Card, which will outline how many negative accounts your full credit report currently lists.

Updated on January 22, 2015

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  • joe

    if a property has a federal income tax lien and the property Is sold at trustee sale what is the status of the tax lien

    • Gerri Detweiler

      The Notice of Federal Tax Lien allows the IRS to let other creditors know it has an interest in your property. But as far as I know, selling the property doesn’t make the underlying tax debt go away. I would recommend you talk with a tax professional.

  • Gerri Detweiler

    Unfortunately we can’t tell from your question. Do they appear to come from the IRS or your state taxing authority? It sounds like the first step is to contact the agency that placed the liens to find out why they are there.

  • Freddy

    Does the removal include state tax liens as well?

    • Gerri Detweiler

      The IRS Fresh Start program only applies to federal liens but your state may have a similar program; you’ll need to check with them.

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