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At Solvable, we care about your financial well-being and are here to help. Our research, articles and ratings, and assessments are based strict editorial integrity. Our company gets compensated by partners who appear on our website. Here is how we get compensated.
At Solvable, we care about your financial well-being and are here to help. Our research, articles and ratings, and assessments are based strict editorial integrity. Our company gets compensated by partners who appear on our website. Here is
If you have unpaid state taxes, the state can place a tax lien on your home, car, bank account, or other assets. This means the state has a legal claim on your property until the debt is satisfied. The lien information also becomes public and is reported to credit agencies, which means damage to your credit score. Follow this advice if you need to know how to remove a state tax lien from your credit report.
Status of a Lien
A state tax lien can be:
Unpaid: An unpaid lien means an existing back taxes has not been satisfied. This status will remain on your credit report (and the lien will remain active) as long as the amount is not paid or otherwise settled.
Paid: A lien that has been paid or released means the debt in question has been paid and the lien is no longer active. This will remain on your credit report for seven years from the release date of the lien.
Withdrawn: A withdrawn lien has been removed from public record by the state tax agency. It should not appear on your credit report.
The Impact of a Tax Lien on Your Credit Report
A tax lien is one of the most damaging issues for your credit score, often for many years after it is settled. This can impact your ability to buy a home, borrow money for education, and reach other goals. This makes learning how to remove a state tax lien from your credit report all the more important. If you are unable to pay your tax lien, the damage to your credit will be permanent. Unlike other types of debts and negative marks, tax liens do not legally need to be removed from your credit report. This is a provision of the Fair Credit Reporting Act. For this reason, you should avoid a tax lien if at all possible.
Federal and state tax liens are treated differently by creditors, however. The IRS Fresh Start Program provides for early removal of federal tax liens from your credit report. The lien will be canceled at your request after you have paid all your outstanding taxes, or in some cases, after you have successfully entered a payment arrangement and made three payments as agreed. Then, you can request removal of the lien from your credit report by the three major credit bureaus.
Get a copy of your report from annualcreditreport.com. This is a free service. Check the public records section of the report to see if your tax lien is listed.
Pay off the balance with your state tax agency. You can do so in a lump sum or arrange for a payment plan. You must get the terms of any installment agreement in writing, including the circumstances under which the lien will be withdrawn.
Save all documents related to the tax lien and your repayment plan. Once you have paid the lien amount in full, request a letter from the state tax agency stating that you have satisfied the debt. You’ll need to send this paperwork to the credit bureaus. The process for obtaining this release form varies by state.
Dispute the lien with the credit bureaus and request that it be removed. You can do this either on the phone, through the mail, or online. However, it needs to be done separately for each bureau where the loan is reported. Each credit bureau has its own online dispute process, which is usually the simplest way to file a dispute. It also allows you to periodically check the status of your request.
If you prefer to dispute the lien by mail, send a certified letter to each credit bureau indicating that you have repaid the loan in full. You should also provide documentation proving that the back taxes in question was paid. Include the file number of the lien (available on your credit report), along with IRS Form 10916(c). Enclose a copy of your credit report with the tax lien section highlighted. The Federal Trade Commission (FTC) provides a template you can use for your dispute letter.
Once you file a dispute, keep a copy of all related records. The credit bureaus must respond to your request within 30 days and make a decision regarding the lien within 90 days. In most cases, the issue will be resolved within four months.
How to Avoid a State Tax Lien
If you cannot afford to pay your state taxes, you should attempt to resolve the debt with your state tax agency before the lien is placed. Options to do so will vary depending on the state to which you owe taxes, however. Take these steps if you’re concerned about your state back taxes:
Always file your taxes, even if you think you will owe more than you can afford. Penalties are much higher for failing to file taxes than they are for late payments.
Get in touch with your state tax agency to learn more about establishing a payment plan. If you are making a good faith effort to pay some of the debt, even if it is a small monthly amount, they will likely be willing to work with you.
Even if you don’t file your taxes, the state tax agency will eventually catch up with you. The eventual cost of ignoring your back taxes is much more than facing it head-on since penalties, interest, and fees will continue to accrue and can become astronomical.
Solvable is a for-profit company that helps customers resolve their tax problems, but a free service for consumers. Partners cannot pay us to guarantee favorable editorial reviews or ratings. We do not publish favorable (or unfavorable) editorial reviews or assessments at the direction of an advertiser or partner. We always work to put consumers first and do our best to provide value in meaningful ways, but our reviews are subjective.
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Solvable is compensated by some of the companies seen on our website. Most often, Solvable receives fees when one of our readers clicks, fills out a form, applies for, or receives a financial product from one of our partners. We also earn fees for capturing consumer stories and writing about them, displaying advertising, having our partners sponsor certain parts of the site, and writing content that may be relevant to our partner and their audience. This compensation may impact where products appear on this site, including article pages, comparison listings, the order in which they appear or if they will even appear on a given page, and our matching recommendations. Solvable has not written about, reviewed, or rated all financial products available to consumers.
In addition, we may be compensated in the following ways:
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Marketing tax resolution, tax preparation, tax audit help and general tax assistance.
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We hope that you find Solvable helpful in your efforts to get a fresh start.
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Congrats! You're One Step Closer To Resolving Your Tax Debt.