What Happens If a Tax Lien Appears on Your Credit Report

Placing a tax lien against your property allows a county, state, or federal government to take possession of it if you fail to pay property or income taxes. The property can then be sold to recoup the amount of taxes that are due and owing.

This doesn't occur right away, however. The government taxing authority should send you several notices and bills for the taxes due before finally filing a tax lien against your property as a last resort.

How To Prevent a Tax Lien

You can prevent the IRS from filing a federal tax lien against you if you're able to pay the tax in full before the lien is filed. You can also prevent a lien by setting up a payment plan or installment agreement with the IRS if you're unable to do pay the tax debt in full in a single lump sum. It really just wants you to address your debt rather than ignore it.

The IRS offers a short-term payment plan if you can come up with the money within 180 days, as well as long-term installment agreement options. A tax lien won't be filed against you if you enter into one of these arrangements, provided that you don't default on payments.

Liens Are Different From Levies

Some people use the words "lien" and "levy" interchangeably, but they're two quite different collection measures.

A tax lien is a document that the IRS files with your local government to ensure its ability to collect the money owed. It prevents you from selling the property without the lien being paid from the proceeds, and the government can force the sale in order to be paid.

A levy is the forced collection of taxes due, typically by garnishing your wages, salary, or bank accounts.

Tax Liens, Public Records, and Credit Reports

Tax liens are public record because they're on file with your local government. For a long time, they appeared on your credit report. They were considered to be one of the most negative credit report entries and they could damage your credit score.

However, tax liens were removed from all credit reports by 2018 and, generally speaking, should no longer appear on your credit report.

Tips for Removal From Your Credit Report

If you happen to have a tax lien on your credit report, you can have the lien withdrawn and removed after you've satisfied the tax obligation if it was filed by the federal government. The IRS indicates that it will release the lien within 30 days after your tax debt is paid off.

Certain taxpayers might also be able to have the tax lien withdrawn by entering into a direct debit installment agreement with the IRS. This allows them to automatically withdraw regular tax payments from your bank account at scheduled intervals. You must owe $25,000 or less to qualify, and have made at least three consecutive payments. Other rules also apply.

Your state might offer a similar tax lien withdrawal procedure, but you'll have to contact its Department of Revenue to find out what the procedure is and how you should apply. The tax lien will most likely follow the normal credit reporting timeframe if it's paid in the absence of a process for tax lien withdrawal.

Consider consulting a tax professional about the best way to proceed if you're having issues with a tax lien to ensure that all procedures are followed correctly.

Correction - Nov. 9, 2022: This article has been updated to reflect changes to how tax liens are reported by credit bureaus.