How to Remove a Tax Lien From Your Credit Report

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Apr 14, 2022

How to Remove a Tax Lien From Your Credit Report

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As taxpayers, we’re all required to pay income taxes. Not paying your income taxes on time or in full can impact your life and personal finances tremendously — federal tax liens can often lead to tax levies, in which the government can come and seize your legal property, such as your house. While tax liens used to show up on your , making it even harder to secure the means to pay off your tax bill, as of 2018, the three credit bureaus, Experian, Transunion, and Equifax no longer report tax liens on your credit reports.

I’ll walk you through everything you need to know about tax liens and how to get rid of them, including how to remove them if they do pop up on your credit report in error.

In this article

What is a tax lien?

When you owe back taxes or do not pay your bill on time, the IRS or state revenue department will reach out to notify you of how much you owe and send you IRS form Notice and Demand for Payment. If you receive this and pay your tax bill, no further action is taken. However, if you do not, a tax lien is issued.

A tax lien, officially filed as Notice of Federal Tax Lien, indicates that you owe tax debt. It also alerts creditors that the U.S. government has a legal claim to your property. This lien gets attached to any assets you own, as well as any you purchase once the lien is issued. There are both federal and state tax liens.

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Should I be worried about a tax lien?

Yes. Tax liens are serious and in some cases, you could lose valuable assets, like your car or house. Having a tax lien filed against you can also limit your ability to open new credit accounts. While tax liens no longer show up on your credit report and won’t directly impact your , lenders can see if you have a tax lien against you, since they are a matter of public record. This tax liability can make it harder to get approved for a personal loan or credit card that you may be intending to use to pay off your tax debt.

Tax liens vs. tax levies

While a tax lien attaches the government to your assets, your possessions will not be seized by a lien alone. A tax levy can be issued if you fail to pay off your tax lien. A levy is the actual process of the government seizing your assets, which could also include business assets.

How to get rid of a tax lien

The best way to ensure you don’t end up owing a tax lien is to make tax payments on time every year — and make sure you respond promptly if you receive a letter from the IRS indicating that you owe money. If you can’t afford your tax bill, opt for IRS installment plans, that can help split your bill into more manageable tax payments. Doing this is preferable to receiving a tax lien.

However, if you already have a lien against you, the best steps you can take are to pay off your tax debt. Once your debt is repaid, the government will release your tax lien after 30 days.

If you enter into repayment or Direct Debit installment agreement with the IRS, you can also have the lien withdrawn.

What if I find a tax lien on my credit report?

Unpaid tax liens should no longer show up on your credit reports. To check yours, you can go to annualcreditreport.com to receive a copy of your free credit report from each of the three credit reporting agencies. You’re entitled to a free report once a year from each bureau under the Fair Credit Reporting Act.

If you notice a tax lien on your report, you don’t need to reach out to credit repair companies. You can have the lien removed yourself by disputing the negative items. To do this, you’ll want to log on to each of the websites of the three major credit bureaus — Experian, Transunion, and Equifax — that show the tax lien on your credit file.

Once there, file a dispute. In your dispute notes, you can include a copy of your credit report or a screenshot of the tax lien mark on your report. From there, the credit bureaus will reach back out to notify you once the credit lien has been removed.

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What if I can’t afford my tax bill?

If you’re unable to pay off your tax lien, you may be worried about a potential tax levy. You do have options though. If an installment plan is not helpful in your situation, you may be considering bankruptcy or other government programs.

Bankruptcy, while only recommended as a last resort, does not always wipe away your tax debt. That means even after taking a huge credit hit, you could end up back in the same spot as where you started — or worse.

Another option is the IRS Fresh Start Program. This program is designed to help those struggling with tax debt. While it won’t wipe away your debt, it can offer you different paths to restore your standing with the IRS and may have even more flexible repayment plan terms or allow you to offer to compromise (negotiate down) your debt. This program also allows small businesses with tax liens to set up installment plans.

The bottom line

Tax liens show up when you fail to pay taxes owed to the federal government. If ignored, they can lead to tax levies in which the government can seize your valuables and other assets. To avoid tax liens, always pay your tax bills in full, on time. If you have a lien, arrange an installment plan with the IRS to avoid further penalties.

Lastly, if you notice a tax lien on your credit report, you can dispute it — it’s no longer legal for this derogatory mark to show up on your credit history.

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Courtney Johnston is a freelance writer, specializing in finance, travel, and health. She has written for The Chicago Tribune, Benzinga, BestReviews, Mashvisor, Fundera, MoneyGeek, and The Culture Trip. She also teaches writing instruction at the University of Indianapolis. Courtney currently resides in Indianapolis.

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