According to a survey recently published by Lexington Law Firm, 23 percent of Americans reported they rely on their tax refund to pay bills, so a delay would affect their financial stability.
But not everyone knows that taxes can impact their credit scores — not just their ability to pay down debts or monthly bills, especially if an individual owes money to the Internal Revenue Service.
It’s extremely important to work with the IRS to pay off the remaining taxes. The consequences of not working diligently with the IRS to reconcile the debt can impact a person’s credit score.
The IRS can file a tax lien in court, giving the federal government actual assets. According to IRS.gov, “a federal tax lien is the government’s legal claim against your property when you neglect or fail to pay a tax debt.”
These tax liens may exist after the IRS assesses a person’s liability and sends a bill to the person explaining how much money is owed, but the person liable neglects or refuses to pay the debt in time.
This lien alerts creditors that the government has a legal right to personal property of the indebted person.
Once a Notice of Federal Tax Lien is filed against a person, it may limit a person’s ability to get credit — apply for a car loan, credit card, etc. And tax liens may be reported on a person’s credit report, therefore influencing the credit score.
“Tax liens can remain on a credit report for up to 7 years. It’s best to pay off the debt you owe the IRS as soon as possible,” said Randy Padawer, consumer advocate for Lexington Law.
Padawer said that paid federal tax liens can be removed from credit reports upon request, but it’s important to recognize that federal tax liens qualify for this consumer protection, but state tax liens do not. Second, the lien must be completely paid off to qualify. Consumers should interact with credit bureaus directly in order to exercise this right.
If an individual owes money to the IRS, there are options for payment plans and negotiating with the IRS to help reduce the financial stress brought upon by owing taxes.
One option is to set up a payment plan to pay off the debt in regular installments. These payment plans can be set up on the IRS website.
Another option includes negotiating a compromise with the IRS. In this scenario, the taxpayer settles the tax debt to a lower amount than what was originally owed.
“If you are concerned about your taxes impacting your credit score or financial stability, it’s best to give yourself time before the April 15 deadline to file your taxes, and if you need to work with the IRS, you have some buffer with deadlines,” Padawer said.
About Lexington Law
Lexington Law is a consumer advocacy law firm with decades of experience, helping hundreds of thousands of Americans work to improve their credit. The firm comprises the largest network of credit repair professionals in the U.S., employing attorneys and paralegals/agents across 19 states. By leveraging consumer rights to resolve issues with creditors, data furnishers and credit bureaus, Lexington works to ensure that client credit reports are fair, accurate, and substantiated. For details about Lexington Law’s services or attorneys, please visit http://www.lexingtonlaw.com.