When you receive a Notice of Federal Tax Lien, then you need to act right away before the IRS takes further collection action and enacts a levy or wage garnishment. Even if you do handle your federal tax debt right after you receive notice about a tax lien, you might still face consequences that affect your financial future. The main effect a tax lien may have is a negative impact on your credit history, which in turn can make it difficult to obtain a line of credit, including a mortgage, in the future.

How a Tax Lien Affects your Credit

When the IRS files a federal tax lien because of unpaid tax debt, it becomes public record. Because of the Fair Credit Reporting Act, this lien will remain on your credit history during the period of time it takes to fully repay the debt, and then will remain for another seven years after you are debt free. This means that even after you pay of your tax debt, whether in one full payment or an Installment Agreement, the lien remains on public record and will be seen by potential creditors, employers, and anyone else running a credit check on you. Although it will be released from your property, allowing you the freedom to sell the property as you wish, it will continue to impact your finances. Even if you have no other debt at the time of applying for a loan, having a history of even just one single tax lien can cause a creditor to deny you a loan or give you a higher interest rate.

Can you Remove the Lien from your Credit History?

Thanks to new legislation known as the Fresh Start Initiative, you can apply for a Withdrawal of your Tax Lien. To qualify for a withdrawal, you have to pay your tax debt in full, have a direct debit Installment Agreement with the IRS, demonstrate a reason that the withdrawal will facilitate your payment of the debt, or have another reason that a withdrawal will be in the best interest of the federal government and yourself. Unfortunately an Offer in Compromise and other tax debt relief settlements will only serve to release the lien, rather than also making you eligible for a withdrawal. Upon acceptance of your application for a withdrawal, the lien will be removed from public record, which means it will no longer be in your credit history. As long as the rest of your credit report is clean, you will have no problem receiving credit.

A Withdrawal of a tax lien removes many of the negative consequences to your financial future, allowing you to truly move on from the hardships you have encountered with your IRS tax debt. If you are unsure of what steps to take to settle your unpaid and back taxes, then you should speak with a tax relief specialist. He or she will explain your options and help you fill out any applications, including for a withdrawal of a tax lien, to increase your chance of acceptance.

Get Tax Help

Let Fidelity Tax Relief Help

Our experienced agents can help resolve your tax issues.
Get Tax Help