When you have an unpaid tax bill with the IRS, your state, your city, or your county, a tax lien can be filed in an effort to force you to pay your outstanding tax obligation.
Liens exist to protect the right of the government to claim your personal property (money or actual property) if you do not pay your taxes. When a tax lien is filed it becomes a public record and, therefore, can be viewed by anyone… including credit reporting agencies.
Many people with tax liens on their credit reports mistakenly believe that the IRS or the state tax authority has directly reported the lien to the credit bureaus. That is a myth. Rather, the credit bureaus themselves proactively seek out tax liens and other public records like judgments and bankruptcies in order to include these public records on consumer credit reports. Tax authorities are not “data furnishers” to the credit bureaus like banks and collection agencies.
Tax Lien Terms to Know
- Unpaid — A tax lien has been issued due to unpaid taxes, and the debt has not yet been paid. Tax liens with this status will likely remain on your credit reports forever.
- Paid or Released — The tax owed has been paid, so the lien (government claim on property) has been released. Tax liens with this status will usually remain on credit reports for 7 year from the date when the lax lien was paid.
- Withdrawn — The tax authority has withdrawn the public record of the tax lien. Tax liens with this status do not appear on credit reports.
Q&A Video: How Can I Remove a Tax Lien from My Credit Report?
How Tax Liens Affect Your Credit Reports
Tax liens are one of the most difficult credit issues for a consumer to overcome. Since FICO and VantageScore consider a tax lien to be a derogatory item, it’s likely that a lien will lower your credit scores. Even when a tax lien is paid and released, you will likely continue to see it negatively impact your credit scores for many years as long as it’s on your credit files.
Unfortunately, there is a strong possibility that an unpaid tax lien will stay on your credit reports forever.
Tax liens, unlike regular collection accounts, are not required by law to be removed from your credit reports after 7 years. In fact, the Fair Credit Reporting Act (the federal law which governs credit reporting) says that a tax lien is not to be removed from credit reports until 7 years from the date the lien is paid and released. Unpaid tax liens can remain indefinitely. In layman’s terms…FOREVER.
Differences Between Federal and State Tax Liens
If you currently have outstanding federal tax liens, there is some good news. There is a way to have paid federal tax liens removed from your credit reports prior to 7 years from the date when the lien is released. In 2011, the IRS introduced the Fresh Start Program, which contained a new policy regarding the way the IRS handles federal tax liens.
Under this program, if a taxpayer pays his or her outstanding tax bill in full, then the IRS will allow for the lien to be withdrawn upon request by the taxpayer. There is even a chance for certain eligible taxpayers to have their federal liens withdrawn by the IRS once they have entered into a payment arrangement (agreeing to pay the tax obligation in full) and have made a minimum of 3 payments.
Once your tax lien has been withdrawn, you can notify all 3 credit bureaus to request that the lien be removed from your reports. The credit bureaus do not currently report withdrawn tax liens on consumer credit reports.
The IRS’s tax lien policy does not apply to state tax liens. Still, if you have paid a state tax lien then you can always request a withdrawal from your state. While there is no guarantee that you will receive a withdrawal of a state tax lien after it is paid, it certainly can’t hurt to ask.
If you are eligible to have a state tax lien removed from your credit report, you can follow the procedure below to attempt to have a it removed from your credit reports. Otherwise, you will need to wait until 7 years from the date of release for the lien to be removed from your credit reports.
Remember: paying your tax lien will immediately release it, but this does not automatically withdraw it from your credit report. You must be meet certain conditions to be eligible for an early withdrawal.
Getting a tax lien removed from your credit report is not always possible, and the process is complex and potentially lengthy. We’ve put together a list of the steps you should take to have the best chance of having your lien removed. The process is very similar for both federal and state tax liens, but you’ll be using different types of documents for each. If you’re only concerned about a federal tax lien, skip the next section.
State Tax Office Contact Information
Each state has its own policies when it comes to tax liens and credit reports. Click the state’s name to contact your tax office for more information about your options.
Removing Tax Liens from Your Credit Reports
These are the complete steps to getting a federal tax lien removed from your reports, including the qualifications you’ll need to meet. This is the same general process to use for state tax liens as well, but the IRS only guarantees the withdrawal of tax liens. Each state has its own policies when it comes to tax liens and credit reports.
1. Request a Copy of Your Credit Report and Check for Accuracy
You can receive a free report from annualcreditreport.com. Any reported tax liens can be found on the public records section of the report. Once you have found the tax lien, you need to check the balance information. You must pay all liens in full before a credit bureau will consider removing the bad debt.
2. Contact the Appropriate Tax Office
Contact your federal or state tax office to confirm the outstanding balance and pay off whatever is left. This is a great opportunity to agree upon a repayment plan or if you have the ability, pay the debt in full. You must settle the debt in full or you will further damage your credit and will be prevented from removing the lien. Be sure to get your repayment agreement in writing.
3. Pay off Your Balance
Pay the debt, either in full or through the repayment plan you established with the tax office. Make sure you save all documents related to the repayment of the lien. Request a paid-in-full letter from the tax office. You will need to save these documents in order to make a case for removal.
4. Preparing to File a Dispute
For Federal Taxes
The IRS’s recent “Fresh Start” program has made it easier for people to request a withdrawal of a federal tax lien, granting withdrawals even when balances remain unpaid when they are under a certain amount. You may qualify for this, but there is no guarantee. To qualify for this program after the lien is released, you must usually meet the following 2 criteria:
- You have been in compliance with the law for the past 3 years when it comes to filing individual, business, and information returns
- You are current on all estimated tax payments and federal tax deposits
To qualify for the program while the lien is still being paid, you must generally meet the following 6 criteria:
- You qualify as a taxpayer.
- You owe no more than $25,000.
- The Direct Debit Installment Agreement must be on track to pay off the entire amount within 60 months, or before the Collection Statue expires, whichever is earlier.
- You are fully compliant with all other payment and filing requirements.
- You have made at least 3 consecutive payments in the direct debit payment plan.
- You have never defaulted on a Direct Debit Installment agreement.
If you meet either of these sets of criteria, you may be eligible to have the tax lien withdrawn from your credit report. If so, go on to the next steps.
- After paying off your balance in full or being granted a waiver for your unpaid balance, you should receive IRS Form 668(Z), Release of Federal Tax Lien
- Find your original IRS Form 668(Y), Notice of Federal Tax Lien
- Fill out IRS Form 12277, Application for Withdrawal of Filed Form 668(Y)
- Submit all 3 of the above documents to the IRS, along with an explanation of why you are requesting the lien to be withdrawn.
- After some time for processing, you should receive IRS Form 10916(c), Withdrawal of Filed Notice of Federal Tax Lien.
- You will use IRS Form 10916(c) in the next steps.
For State Taxes
After paying your tax lien in full, you will need to contact your state tax office and request a form verifying the release of the lien. This process will differ by state.
5. Dispute Online, Write a Dispute Letter, or Call the Credit Bureaus
You can dispute an item on your credit report in 3 different ways: online, by mail, or by phone. You must submit a dispute for every credit report that you want to remove the tax lien from. This means that if the lien is on all 3 of your credit reports, you’ll need to send a dispute to each credit agency.
Dispute an Item Online
The simplest way to dispute an item on your credit report is to use the online dispute process provided by each credit bureau. You’ll need to provide some identifying information, and then you can follow the steps provided by the credit agency. You can also use this service to check the status of your dispute, whether you submitted it online, by mail, or by phone.
|Equifax Online Dispute Site||Experian Online Dispute Site||TransUnion Online Dispute Site|
Dispute an Item by Mail
Write a certified dispute letter to all relevant credit bureaus reporting the tax lien and your full repayment of it (a certified letter requires confirmation of delivery, so you’ll know that your letter was received – ask how to send one at your post office). The credit bureaus may remove the lien if you have proof that the lien is paid, but this varies based on the situation and the state.
You will need to include all documents related to the lien with the letter. This includes the file number you’ll find on each of your credit reports. For federal taxes, this should include IRS Form 10916(c) from the previous step.
Make a copy of the section of your credit report that includes the tax lien, and circle the tax lien name and description with a bright-colored pen or marker. You will use this information in your letter and send the copy along with it. Once you have the documents and name of the tax lien, you are ready to write your letter.
See the next section for a sample letter you can use as an example, based on a template provided by the FTC. Just fill in the appropriate spaces with your own information.
TransUnion also provides a form you can print and fill out to mail in.
|Credit Bureau Mailing Addresses For Disputes|
P.O. Box 740256
Atlanta, GA 30374-0256
P.O. Box 9701
Allen, TX 75013
P.O. Box 2000
Chester, PA 19016
Dispute an Item by Phone
You can dispute a tax lien by phone as well. You’ll need to gather together all documents related to the lien, as explained in the section above.
|1-866 349-5191||Use the phone number found on your credit report||800-916-8800
Monday – Friday
Hours: 8 am – 11 pm EST
Closed on major U.S. holidays
Sample Dispute Letter for Tax Liens
[Your City, State, Zip Code]
[City, State, Zip Code]
Dear Sir or Madam:
I am writing to dispute the following information in my file. I have circled the items I dispute on the attached copy of the report I received.
This item: [identify item(s) disputed by name of source, such as creditors or tax court, and identify type of item, a tax lien. Include the date that the lien began] is inaccurate because I have been issued a formal tax lien withdrawal notice from [either the IRS or the state that filed the tax lien]. I am requesting that the item be removed to correct the information.
Enclosed are copies of [use this sentence if applicable and describe any enclosed documentation, like the copy of your credit report. For federal tax liens, you should also write “IRS Form 10916(c)” here] supporting my position. Please reinvestigate this matter and delete the disputed item as soon as possible.
Enclosures: [List what you are enclosing, like copies of credit reports and IRS Form 10916(c).]
6. Send the Letter to the Credit Bureaus
Finally, send the dispute letter and all supporting documents to all credit bureaus. Keep a copy of the letter for your records. Be patient in waiting for a response from the credit bureaus. They have 30 days to respond to your request and an additional 90 days to make a decision regarding the inquiry. The whole process can take as long as four months.
If you have feedback or questions about this, please contact us!