How To Get Tax Liens Off Your Credit Report

Borrowing, Credit Rating, Tax Liens, Taxes

Tax liens are claims made on your property by a government entity for failure to pay your taxes. A lien doesn’t mean your property will be seized – it just means that the agency applying the lien has the first right to your property compared to other creditors.

A tax lien on your credit report can drop your credit score and raise red flags with potential creditors. Tax agencies don’t report unpaid tax bills to credit reporting agencies, but tax liens are public records – and until recently, they were part of the public records that could be scanned by credit reporting agencies and included on your credit report as negative items (along with bankruptcies and civil judgments).

Worse, tax liens can appear on your credit report for up to ten years after the lien has been fully paid and released – complete with an officially issued document verifying that the taxing agency no longer has a claim on your property.

In 2015, the Consumer Financial Protection Bureau (CFPB) reached a settlement with the three major credit reporting agencies (Equifax, Experian, and TransUnion) that added stricter requirements on verifying the accuracy of public records before they could be included in credit reports. The credit reporting agencies were also required to refresh that information every ninety days. Too many liens were incorrectly assigned to the wrong credit reports, and too many records were not properly updated by the agencies when tax liens were paid.

To avoid the burden, the credit reporting agencies agreed to remove all tax liens from credit reports altogether. Around half of reported tax liens were removed in July 2017, and the rest were scheduled for removal in the first half of 2018. However, there’s no guarantee that all liens have been removed as planned.

Does your credit report show a tax lien? Dispute the item with all three credit reporting agencies (assuming all three list the lien). They should remove the lien upon request whether or not it’s paid – especially if it was incorrectly assigned to your record – but the agencies may insist on supporting documentation from the taxing agency (IRS or state) that clarifies the lien in question.

In that case, if the lien is yours and was paid but not properly reported, you’ll need a copy of the appropriate release form. The release form notifies the proper authorities to update county records to show that the agency no longer has a claim on your property. For federal taxes, that’s IRS Form 668(Z), Release of Federal Tax Lien. State agencies will have their own form, so contact your state Department of Revenue for instructions on how to proceed.

To remove an existing unpaid lien from your property, you must first pay the underlying tax bill. The lien will be formally released, and, if required, you can supply the necessary form to the credit reporting agencies to show that it’s been paid. (Of course, you can avoid tax liens by always paying your taxes on time or working out a payment plan with the relevant agency.)

While tax liens shouldn’t be on your credit report now, it’s possible that tax lien information could reappear at a future date. Creditors are nervous that the credit reporting agencies’ actions have gone too far, and that exclusion of liens on credit reports will lead to risky loans and extensions of credit.

Eventually, there may be a mechanism for reporting tax liens that satisfies all parties, and new tax liens will appear on credit reports again. Until then, you shouldn’t see tax liens on credit reports – and that’s just one more reason you should check your credit report frequently.

You can check your credit score and read your credit report for free within minutes by joining MoneyTips.

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