When you don’t pay your taxes, the IRS can file a tax lien, which is a legal claim to your property. This is different from a levy, which would mean the IRS is actually seizing the property. A tax lien shows other creditors that their interest in your property comes first. What does this mean for your credit? Nothing good. Besides potentially affecting your credit score, tax liens on your credit report can make it harder for you to buy a house or get a business loan. These instructions explain how to get rid of a tax lien by working with the IRS. We also explain how to remove a tax lien from your credit report, if you still have tax liens that appear.
Step 1: Pay off your tax debt
Pay off your tax debt in one lump sum or in smaller installments.
This is the most direct way to get rid of a federal tax lien. Even if the Notice of Federal Tax Lien is not impacting your credit, it will impact your ability to sell or obtain property. Any time a debt exists to the IRS, there is a statutory lien in place making the IRS a priority creditor. There are a ton of options to get into an IRS program that will resolve the tax lien.
Debt.com can connect you to a tax debt professional who can guide you through the process of paying off your tax debt.
Estimated Time (Lump-sum Payment): 30 minutes – 1 hour
Estimated Time (installment agreement): Varies by program but generally up to six years.
Step 2: See if you are eligible for withdrawal
Check the guidelines for applying to have a tax lien withdrawn.
You can apply if you meet the following requirements:
- The IRS released your lien and you paid off all of your tax debt.
- Withdraw of the tax lien will facilitate collections of the tax liability.
- Withdraw is in the best interest of both the taxpayer and the government.
Other guidelines were created under the IRS Fresh Start initiative, which made it easier for taxpayers to repay loans.
Fresh Start also made it possible for taxpayers to have their lien withdrawn if they agreed to a Direct Debit installment agreement. A Direct Debit installment agreement takes monthly payments toward your tax debt directly from your checking account. Tax lien withdrawal requirements for those in a Direct Debit installment agreement are as follows:
- The balance of your tax debt must be $25,000 or less.
- You must pay all of your tax debt either before the expiration of the collection statute or within 60 months, whichever comes sooner.
- All of your other files must be in compliance.
- You’ve paid 3 Direct Debit payments in a row.
- You have no history of defaulting on any Direct Debit installment agreements.
When you meet these requirements, you can begin the lien withdrawal process.
Double- and triple-check these criteria against your personal finances to increase your chance of having your withdrawal accepted on the first try.
Estimated Prep Time: 1-2 hours
Stuck with tax debt and don’t know where to begin? Debt.com will connect you to a tax professional who can help.
Step 3: File for withdrawal
Send your application for lien withdrawal to the IRS.
Start by filling out IRS Form 12277. It’s a simple, one-page form. This is basically a request to reverse IRS Form 668(Y), which is the Notice of Federal Tax Lien you received when the IRS created the lien. If everything goes as planned, you should receive IRS Form 10916(c) in the mail. This form is a statement of tax lien withdrawal, meaning that the lien can officially be removed from your credit report.
Make copies of the completed form or take notes during the phone call to keep for future reference.
Estimated Form Time: 15-30 minutes
Estimated Response Time: 30-60 days
Step 4: Contact the credit bureaus
Send a letter to the 3 credit bureaus alerting them to the withdrawal of your tax lien.
The three credit bureaus are Equifax, TransUnion, and Experian. To finalize the withdrawal of your tax lien from your credit report, send a letter to all 3 of the bureaus disputing its inclusion in your report.
Include a copy of your credit report and the IRS Form 10916(c) that you received in the mail.
Total Time: From 30 days up to 4 months
Talk to someone about your tax debt today and take back control of your financial situation.
Article last modified on June 28, 2023. Published by Debt.com, LLC