How to Remove Tax Liens from your Credit Report
If you’re wondering how to remove tax liens from your credit report, look no further. But first, let’s clarify what a tax lien is. Tax lien is the right of the IRS or state or country to take possession of the property in-case of negligence in paying property tax or income tax. It is filed in-order to force the tax-payer to pay his/her outstanding tax amount. However, when filed it is also recorded in the public record and then added to the consumer credit report. It can be viewed by anyone including credit reporting agencies.
Tax lien has derogatory impact on the credit score. Consumers with no other credit issues could lose 100 points with tax lien. Being one of the most difficult credit issues to overcome, it can stay on the credit report for 7 years and in certain situation, forever! Unlike other collection accounts, it is not mandatory by the law to remove it from credit report after 7 years. According to Fair Credit Reporting Act (FCRA), the tax lien may be removed from credit report, 7 years after the date of payment of outstanding tax amount.
So, What Can You Do About It?
The good news is that it is possible for consumers to remove the tax liens prior to 7 years, as long as it’s paid. The ‘Fresh Start Initiative’ from IRS has released new policy to handle tax liens. Full payment of outstanding tax amount will facilitate taxpayers to withdraw lien from credit history, upon request. Some eligibility criteria facilitates taxpayers to withdraw after a minimum of 3 payments towards the payment agreement. However, it should be noted that removing tax liens from credit history is not always possible, but customers can try a number of steps to get the lien removed.
Do You Qualify? You may request to withdraw tax lien for credit report if:
- You’ve paid the full amount you owe and lien has been released
- For past three years, you are in compliance with providing your individual, business returns
- You’re up-to-date on your tax payment and deposits
- Owe $25,000 or less and have agreed on the direct debit installment payment toIRS, from your back account automatically.
- Ask tax professionals to learn more about the eligibility criteria. Pay the Outstanding Tax Amount:
- After full payment of you due, you may receive the IRS Form 668(Z) for ‘Release of Federal Tax Lien’
- Fill out IRS Form 12277 for ‘Application of Withdrawal’
- Submit ‘Notice of Federal Tax Lien’ IRS Form 668(Y) along with above two form to IRS and provide explanation of why you want your tax lien to be withdrawn.
- You may receive the IRS Form 10916(c) for ‘Withdrawal of Filed Notice of Federal Tax Lien’. It is also filed in the recording office where the original NFTL was filled.
You may produce these documents to the credit reporting agencies or ask IRS to to notify them.
Summary: How to remove tax liens from your credit report
Above all, send a goodwill letter to all three credit bureaus, explaining your full payment of outstanding money. Give honest reason why you defaulted. Address the issues behind tax lien and steps you took to pay what you owe. Moreover, be patient! The complete process may take months to reflect on your credit report.