How to Stop a Tax Lien from Ruining Your Credit

Receiving a letter from the IRS can be scary. But a tax lien is not as terrifying as it sounds. You can stop a tax lien or even remove a tax lien from your credit files before it damages your credit score if you know the right steps to take.

What Is a Tax Lien?

A notice of a tax lien means the government has a legal claim your property, including real estate, personal property, or financial assets, for failure to pay a tax debt. If you ignore your tax bills, you will eventually receive a notice of a tax lien.

How To Stop a Tax Lien

If you’ve gotten a tax lien, unfortunately, it is too late to just pay your tax bill with no damage to your credit. The IRS reports the lien to the three credit bureaus and it could remain in your credit files for up to seven years. The best way to stop a tax lien is by paying your tax bill when it’s due.

How to Stop a Tax Lien If You Can’t Pay Your Taxes

If you can’t pay your tax bill, you have several options.

Some people use credit cards to pay their taxes. This is usually not the best choice since the IRS charges additional fees for credit card use. Of course, if you don’t pay off the balance, you could be saddled with high interest charges, too. But if it can help stop a tax lien, it may be worth considering.

Similarly, you could consider a home equity loan or a line of credit. Just remember to factor in additional expenses associated with a second mortgage, such as closing costs.

If you have any cash available to make even a partial payment, it’s better to negotiate with the IRS. If you owe less than $25,000 in back taxes or can pay your tax bill down to $25,000 before negotiating, you can ask for a direct debit installment agreement with the IRS. You will pay your tax bill in monthly installments, debited directly from your bank account, over the next five years. Or, you may wish to enlist the help of a tax attorney to negotiate an agreement on your behalf.

You could also hire a tax attorney to help you file an offer in compromise. With this agreement, the IRS may settle your tax debt for less than you owe. It’s not easy to obtain an OiC. You must prove you can’t pay your debt or meet the terms of an installment agreement, or that the tax bill was an error.

How to Remove a Tax Lien

If you’ve received a tax lien, it’s important to take care of it as quickly as possible by paying your tax bill, negotiating an agreement, or filing an OiC. If you pay the bill or the IRS accepts your OiC, it will release the lien within 30 days. And, if you agree to an installment plan, the IRS will stop a tax lien after you’ve made three consecutive on-time payments.

However, the notice of tax lien and its release will remain on your credit report for seven years and could affect your credit score unless you file for a withdrawal of the lien. You may need a tax professional to help with the paperwork.

Once you’ve filed the withdrawal, check your credit reports after a few months to ensure the lien was removed. With the right tax professional on your side, a notice of tax lien is nothing to fear. It’s even possible to remove a tax lien with no damage to your credit.

Wade Schlosser is the CEO of Solvable.com, an online platform that gives consumers the ability to research solutions, review businesses, and receive help to resolve their debts. Dedicated to the mission of helping Americans improve their financial situations, Solvable helps consumers identify the best do-it-for-me or do-it-yourself debt solutions.

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