Tax Liens On A Credit Report


When you fail to pay your taxes on time you can be faced with a tax lien. These have historically appeared in credit reports. Yet a ruling in 2018 has put an end to tax liens being shown on these reports.


However, the decision may change in the future and tax liens find their way back into credit reports.


What are tax liens?

If you don’t pay your tax on time, the government can issue a tax lien. This is a claim against your income or property in which the outstanding debt is recovered.


The government can issue that your wages be garnished until you settle your tax bill. Regarding your property, you don’t have to sell it. However, when you do the government is the first creditor to be serviced from the proceeds of the sale.


Why aren’t tax liens listed on credit reports?

Tax liens that were in place prior to 2018 may still appear on a credit report. However, in 2018 the three major players in credit, Equifax, Experian, and TransUnion created the National Consumer Assistance Plan (NCAP).


The NCAP is designed to make credit reporting more transparent and accurate. An outcome of this was to eliminate the recording of tax liens. That is because the judgments and liens were often recorded incorrectly.


In the future, the credit bureaus may change their mind. That is, they could require tax liens to be recorded once again in credit reports. If so, the companies will have to follow the guidelines of the Fair Credit Recording Act.


When is a tax lien issued?

If you have unpaid taxes, you will be notified by the IRS. They send you letters over a six-week period. If you ignore these letters, then the IRS will officially make an application to the court for the recovery of the debt.


It is then that you will be notified of the tax lien.


You can make an arrangement to pay the debt through an installment plan.


Disputing the lien

You have the right to dispute the lien if you think an error was made. You can do so by formally contacting a credit bureau. There is no charge for challenging any negative items on your credit report.


If you don’t know how to dispute a lien, you can reach out to a credit repair agency. They are experts in dealing with negative items on credit reports.


How does a tax lien affect my credit score?

Tax liens impact only a small number of people. If you find a tax lien on your credit report, having it successfully removed can increase your score by 30 points.


Conclusion

Tax liens are issued when you have an unpaid tax bill. Since 2018 the National Consumer Assistance Plan has recommended leaving tax liens off credit reports. Yet, there is the possibility that they may come back into reports.


If you do find a tax lien on your report, you can challenge it yourself or through a credit repair agency. By doing so you could improve your credit score by 30 points.