The government doesn’t play around with taxpayers who skip out on what they owe. When you ignore your federal, state, or property tax bills — and you don’t make any attempts to pay the balance — the government can place a tax lien on your house.
A tax lien is a legal claim on property for failure to pay taxes owed. It gives the tax authority (also known as the lienholder) first rights to your property over other creditors.
A lien differs from a levy in that the government doesn’t seize your house or other property. Keep in mind that a lien can become a levy at some point if you never pay your taxes or never make arrangements to satisfy the debt. The tax authority decides when to impose a levy. You’ll receive written notice of the levy at least 30 days before it takes place.
A lien is a serious matter because it can negatively affect your credit. Unpaid tax liens can remain on credit reports indefinitely, whereas paid tax liens can remain for up to seven years from the date filed.
Of course, the best way to handle a tax lien is to avoid one in the first place. But if the damage is done, here’s how to put this ugly mark behind you.
1. Dispute a filing error
Sometimes, state or federal tax liens mistakenly appear on credit reports. If you check your credit report and find a lien reported in error, don’t ignore this mistake. This type of error can lower your credit score by 100 points or more. Contact the IRS or your state tax office to file a dispute. If a review of your account proves that you don’t owe the debt, the government withdraws the tax lien (as if it never happened). A withdrawal also removes the lien from your credit report.
2. Pay your tax bill in full
Parting with your hard-earned money isn’t easy, but paying your tax bill in full is one of the fastest ways to get the government off your back and move on with your life.
Typically, the government releases tax liens within 30 days of full payment of an outstanding debt (including penalties and interest). A release removes the lien from the property.
Unfortunately, paid tax liens can still remain on your credit report for up to seven years. However, under the IRS’s…