Guide: How to Get a Federal or State Tax Lien Removed from your Credit Report
When you have an unpaid Federal 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) in the event you do not pay your taxes.
When a tax lien is filed it is recorded as 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 plus 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.
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 tax liens are considered by FICO and VantageScore to be a derogatory item, there is a chance that your credit scores could be lowered by the lien. Even when a tax lien is paid and released, your credit scores will likely continue to be negatively impacted by the lien 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, here 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.
The highlight of the new program is the fact that if a taxpayer will pay his/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.
If you can have your lien withdrawn, be sure to notify all 3 credit bureaus and 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. While there is no guarantee that you will receive a withdrawal of a state tax lien after it is paid, it certainly cannot 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 remove and 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.Source: www.creditcardinsider.com