How to Remove State Tax Liens from a Credit Report

Written by Jeff Campbell in Taxes,Pay Off Debt Last Updated September 4, 2022

tax liens credit report lg

Delinquent taxpayers may often think that removing a tax lien from their credit report is impossible. Luckily, state tax liens are a little easier to deal with than other types, so here’s how to remove state tax liens from a credit report.

  1. Review the lien information on the credit report
  2. Dispute any inaccurate information with all 3 credit bureaus
  3. Pay the state the amount owed once verified
  4. Request the state remove the lien within 30 days from all 3 credit bureaus
  5. Send a written request to all 3 credit bureaus with proof of payment requesting them to mark it as paid within 30 days
  6. Get a fresh copy of the credit report 45 days later and review to see if the notice has been updated

Unpaid state tax can incur a lien on your property or assets. Therefore, the government can claim your property of wages until the debt is paid. Having a state tax lien has so many effects on your financial health.

Read on as we discuss everything you need to know on the topic!

Before we dive in, we have to know where we’re starting from.

If you don’t have a current copy of your credit report, then we’re just shooting blindly in knowing just how bad the situation is and where to start.

Luckily, myFICO can get you access to your credit score and a copy of your credit report from all 3 credit bureaus (Equifax, TransUnion, and Experian)!

But myFICO does more than just get you a credit report. With their credit simulator, you can see how possible financial choices will affect your credit score in the future!

Get your 3 bureau report today and save 20%!

Learn more over at myFICO and get started today (just click the link to see all the details on their site).

Can tax liens be removed from a credit report?

Yes. But it’s worth pointing out that in 2018 the three major credit bureaus stopped listing tax liens in credit reports. So, if you have one on your credit report, it is likely from before 2018.

So the info below pertains to that.

First, you must pay the tax lien before you start working on removing it from your credit report.

Suppose you have unpaid state income taxes. The state can place a tax lien on your assets, vehicles, or bank accounts. Therefore, the state has legal claims on your property until you pay what you owe.

Before attempting to remove a state tax lien from a credit report, you should understand its status.

A tax lien could have any of the three statuses described below:

  1. An unpaid tax lien: unpaid state tax lien describes existing back taxes you owe. The lien remains active until it is settled.
  2. Paid tax lien: a paid lien means the lien is not “active” as the debt has been settled. However, it may remain on your credit report for about 7 (seven) years from the settlement date.
  3. Withdrawn lien: suppose the tax agency removes the record of the lien from public records. The status of the lien becomes a withdrawn lien.

Creditors treat Federal and state tax liens differently. Suppose you have a federal tax lien. You can enroll in the Fresh Start Program to aid in the removal of the tax lien from your credit report.

However, individuals with state tax liens do not qualify for the Fresh Start initiative. Here are steps to remove a state tax lien from your credit report.

1. Pay your tax debt

The first step is to get a copy of your credit report. Next, you can see if you have a tax lien in the public records section. Finally, after you know the amount you owe, proceed to pay the debt with your state tax agency.

You can pay off the balance in a lump sum payment. On the other hand, you can arrange a payment plan for installment deposits. However, be sure to get the terms for installment payment in writing- use clear terms.

Once the lien is repaid, request a confirmation letter from your state tax agency. This letter will be submitted to the credit bureaus to remove the lien from your public information. However, remember that this process varies according to state laws.

NB: Remember to check your tax balances to know exactly what you owe.

Sometimes mistakes happen with calculating what you owe. Read a recent article on how to clear your credit for free.

Furthermore, there is a difference between a certificate of subordination and an application for withdrawal. A certificate of subordination does not remove the unpaid tax lien. Instead, it puts other creditors’ claims before the IRS, which increases your chances of getting a loan.

2. Dispute the lien

Another way to remove the state tax lien from your credit report is to dispute the lien. You can dispute the lien with the three major credit bureaus and request its removal. Disputing the lien can be done online, via email, or by phone.

Disputing the lien may be tricky. Each bureau has its process for disputing a lien. Usually, you can file a dispute online via their websites. In addition, you can check the status of your request to track the progress.

Suppose you choose to dispute the lien through email. You can follow the template provided by the Federal Trade Commission. In addition, attach the appropriate documents to prove the back taxes are paid. They include:

  • A copy of your credit report (highlight the tax lien section)
  • File number on the lien
  • IRS Form 10916 (c)

3. Wait for the credit bureau to respond

After filing for a dispute, ensure you have a copy of all related documents. The credit bureaus usually respond within 30 days of application. However, it may take up to four months for a tax lien to be removed from your credit report.

Does a tax lien affect your credit score?

No. The good news came in 2018 when the three major credit bureaus stopped listing tax liens in credit reports.

Previously, the inability to pay your tax lien had a permanent damaging effect on your credit score. Consequently, it will hinder your chances of getting mortgages, credit cards, or loans.

The three national credit bureaus are committed to reporting accurate information. According to the Fair Credit Reporting Act of 1990, they are required to report a credit score accurately.

Policy changes such as discontinuing public debt reporting take some time before they take effect. Suppose your credit report still has a history of a tax lien. The credit bureaus will not simply remove it.

You would have to dispute it for them to take action.

The reality is that you may be unaware of the problem until you try to get a loan. Unfortunately, getting a loan when you have a tax debt on your credit score is challenging, especially if your credit history is already flawed.

You may eventually get a loan but with higher interest rates than usual.

Of course, there is a direct correlation between your credit score and what kind of interest rate you can get.

Think an 800 credit score is out of the question? Think again! In a recent article on how to increase your credit score to 800, I cover all the tips you need (mostly free) and the best way to quickly and easily raise yours!

Just click that link to read it on my site.

How long will negative information concerning unpaid tax liens be kept in your credit report?

Negative information regarding unpaid tax liens NO LONGER appears in your credit report.

In 2017, the credit bureaus changed how they reported civil judgments and public records. Therefore, by 2018, they decided to eliminate all tax liens from a credit report.

This new law applies to any tax liens filed before 2017 and any filed afterward.

Previously, public information regarding unpaid tax liens will remain on your credit report for 10 (ten) years. A federal government law determines the length of time negative information is kept on your credit report- Fair Credit Reporting Act.

However, you do not have to worry about a public notice of a federal tax lien, thanks to new laws.

Will a tax lien prevent me from getting a mortgage?

Unpaid liens may make it difficult, but not impossible, to get approval for a mortgage.

Most times, mortgage lenders overlook certain debts. However, things can spiral downwards very fast in the case of tax liability.

Suppose you owe federal income taxes. As a result, the IRS can place a lien on your assets and property. As a result, financial institutions may not be too keen on giving you a mortgage.

HUD laws mention that “Tax liens may remain unpaid provided the lien holder subordinates the tax lien to the FHA-insured mortgage.” In addition, the regulation mentions, “If any regular payments are to be made, they must be included in the qualifying ratios.

However, a lien withdrawn release, and an official notice on the withdrawal of filed form, can improve the chances of getting a mortgage.

Do unpaid taxes go to collections?

Yes, unpaid taxes may go to collections.

Suppose you do not pay your tax debt or reach out through phone calls to the IRS. The IRS can take collection actions to retrieve the unpaid debt.

One of the collection actions is a notice of tax lien. This is a claim on personal property to fulfill what you owe. Therefore, the government can declare an interest in vehicles, financial assets, houses, and others.

Suppose you acquire any property after the lien. The new property is not excluded from the government’s interests. Only when the tax lien is settled can you reclaim control of a property.

Another method the IRS employs, if we’re talking about a Federal tax lien, is issuing a Notice of Levy. Suppose you do nothing, and the levy becomes active. Then, the IRS can seize your property, your bank account, real estate holdings, vehicles, retirement income, or social security benefits.

In addition, the IRS could garnish your wages.

Furthermore, if you owe tax, the IRS could get it through “refund offset.” For example, suppose you missed the deadline to pay your tax. The IRS could take future tax refunds to offset the unpaid debt.

For example, if you have state income tax refunds due, the IRS may divert them to pay your tax debt. So whether Federal or state tax liens, if you have received a tax lien notice, consider getting a qualified tax attorney in your area to help.

Struggling to pay your bills?

It is not uncommon for people to have problems with paying bills such as property taxes, medical bills, and student loans. In a recent article, I get into exactly what you need to do to get on a budget and stick to it, even if you’re in a low-income bracket!

Just click that link to read it on my site.

What Is A State Tax Lien

Conclusion

A state tax lien is a legal claim on an individual’s property due to tax debt. Tax liens usually arise from debt in back taxes and fees related to registrations, permits, or licenses. This debt may be reported to credit agencies.

However, if you cannot pay your state taxes due to financial issues, the best thing to do is to attempt to clear it before a lien is filed. The cost of ignoring your taxes is more than getting in touch and agreeing on a payment plan.

Before we dive in, we have to know where we’re starting from.

If you don’t have a current copy of your credit report, then we’re just shooting blindly in knowing just how bad the situation is and where to start.

Luckily, myFICO can get you access to your credit score and a copy of your credit report from all 3 credit bureaus (Equifax, TransUnion, and Experian)!

But myFICO does more than just get you a credit report. With their credit simulator, you can see how possible financial choices will affect your credit score in the future!

Get your 3 bureau report today and save 20%!

Learn more over at myFICO and get started today (just click the link to see all the details on their site).

Image by Clker-Free-Vector-Images from Pixabay AND Image by Steve Buissinne from Pixabay

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