Everything to Know About Tax Liens

A tax lien is a legal claim against property that acts as security for a debt. If there’s a tax lien against you, it means you owe an unpaid tax bill to the local, state, or federal government. Tax liens require you to pay your tax debt before you can sell the attached property. 

Federal tax liens can last for 10 years; state time limits vary. If you’ve learned there’s a tax lien on your property, don’t panic. You have options for dealing with—and removing—a tax lien, and we’ll walk you through what you need to know from A to Z. 

What is a tax lien?

A tax lien is a legal claim that a government entity—such as the federal or state government—places on your property when you fail to pay your taxes. This lien serves as a public notice that you owe taxes, and it ensures that the government has the right to claim your assets if the debt is not paid.

Tax liens can affect any kind of property, including your home, car, or other valuable assets. Essentially, the lien gives the government a way to secure repayment of your tax debt, meaning it could seize and sell your property if the debt remains unpaid for a long period.

A tax lien doesn’t mean the government immediately takes your property, but it puts you at risk if the debt isn’t addressed. In addition to the risk of losing assets, tax liens can also damage your credit, making it harder to borrow money or secure loans.

In short, a tax lien is the government’s way of saying, “You owe us, and we have the right to take your property if you don’t pay.

There are several misconceptions about tax liens, including that a property cannot be sold if there is a tax lien—the property likely can be sold, but the lien must be satisfied ideally from the sale proceeds. There are multiple types of tax liens (federal, state, and local), which are handled differently. It is also important to be aware that a tax lien is not automatically removed when the taxes are paid—a request needs to be submitted to have the lien removed from public records (even though you are no longer on the hook to pay since you have paid, it is wise to send in the request to have the lien removed from public records).

Erin Kinkade, CFP®

How long does a tax lien last?

The length of time a tax lien lasts depends on the type of lien and the laws in your area, but most liens can stick around for several years if left unpaid. For federal tax liens, the lien lasts for 10 years because the IRS has a statute of limitations on collecting taxes, which is generally 10 years from the date the tax was assessed. 

If you don’t settle your tax debt within this time frame, the lien will automatically expire. However, the IRS may take legal action to extend the lien in certain situations, such as if you enter into an installment agreement or file for bankruptcy.

State tax liens vary by state, but they typically last between five and 20 years, depending on the local laws. Some states also allow tax authorities to renew the lien if the debt remains unpaid after the initial period, which could extend the time the lien stays on your property.

Once a tax lien is issued, it remains in place until one of the following happens:

1. The debt is paid in full.
2. The tax authority discharges, releases, or withdraws the lien.
3. The lien expires due to the statute of limitations.

Keep in mind that just because the lien expires doesn’t mean your debt is forgiven. You’ll still owe the tax, and the government can take other actions to collect, such as garnishing wages or seizing assets.

It’s important to address tax liens as soon as possible because they can harm your credit and prevent you from selling or refinancing property until the lien is resolved.

Since credit and background checks are now a “norm” when an employer is researching you as a stand-up citizen (including your social media …). A lien could impact the decision if the employer uncovers the lien record, particularly if you haven’t paid it or did pay it, but didn’t request it to be removed from public record. It is wise to be upfront with your potential employer to let it know about anything it might find. This allows you to state your case. Whether a lien can affect professional licensing, it depends on what is required to either obtain the license or report to the professional licensing agency.

Erin Kinkade, CFP®

Federal tax liens

Federal tax liens are issued by the federal government, specifically by the IRS. Here’s how the process works. 

1. The IRS assesses your tax liability and puts a balance due on the books.
2. It sends a written Notice and Demand for Payment to you that tells you what you owe. 
3. You neglect or refuse to pay the debt. 

That last point is key. The IRS doesn’t issue tax liens for no reason. You must have been notified of a debt and allowed it to go unpaid before the government will move forward with a lien on your property.  

What happens if the IRS puts a lien on me?

An IRS tax lien carries negative consequences. Here’s what you can expect if the IRS places a lien against you. 

• All your personal property is subject to the claim, including your home or other real estate you own, vehicles, bank accounts, investments, or any assets you buy once the lien is in place. 
• The IRS may file a public notice of lien against you, which could make it harder to qualify for new credit. 
• If you own a business, the lien also attaches to your business property, including tangible assets, such as equipment or inventory, and intangibles, including your accounts receivable. 
• The IRS could follow up with a tax levy to force the sale of your property to satisfy your tax debt. 

In short, a tax lien isn’t good. It’s important to act fast to minimize the impact if you get a tax lien. 

How do I know if I have a federal tax lien against me?

By law, tax liens occur automatically when you receive notice of a tax debt and it goes unpaid. If you get a Notice and Demand for Payment but didn’t pay the bill, you can expect a lien to follow. 

The IRS can file a Notice of Federal Tax Lien to inform your creditors a tax lien exists. This notice is filed with local or state authorities, usually the register of deeds or the secretary of state. You’ll also receive Letter 3172, Notice of Federal Tax Lien Filing, which informs you of the lien and your right to file an appeal. 

How do I get rid of a federal tax lien?

The best way to get rid of a federal tax lien is to pay what you owe in full as soon as possible. The IRS releases the lien within 30 days of receiving payment. 

 If you can’t do that, consider:

• Setting up an Installment Agreement (payment plan) to satisfy the debt
• Asking for an Offer in Compromise, which would allow you to settle your IRS tax debt for less than you owe
• Appealing the lien

Bankruptcy can discharge certain tax debts, but it doesn’t remove a lien. 

The IRS offers three options for mitigating the impact of a tax lien when the debt remains unpaid:

1. Discharge of property removes the lien from specific property
2. Subordination allows other creditors to move ahead of the IRS for payment priority
3. Withdrawal removes the Notice of Federal Tax Lien

These options don’t erase your debt, but they can ease some of the credit impacts of a tax lien while you figure out a plan to pay what you owe. 

State tax liens

State tax authorities can also impose a lien when a tax bill goes unpaid. Liens can be issued for unpaid income tax, but you could be subject to a lien if you fail to pay your property taxes. State laws determine:

• When a lien is issued
• How taxpayers are notified
• Remedies to address the lien
• How long a lien lasts

In California, for example, a statutory tax lien is automatically issued to any personal property you own or have rights to when you owe a tax debt. The state can file a Notice of State Tax Lien, which enters into the public record, and the lien remains in place until it’s paid or for 10 years, whichever comes first. 

What happens if there is a state tax lien against me?

The consequences of a state tax lien can mirror those of a federal tax lien. For example, in California, tax liens are part of the public record, which could make it harder to:

• Buy, sell, refinance, or transfer property
• Obtain new credit
• Get hired for certain jobs

The lien attaches to all the property you own and any property you acquire while the lien is in place. 

How do I know if I have a state tax lien against me?

State tax agencies can send written notices and requests for payment and follow them up with a tax lien notice if you don’t pay. Even if you don’t recall receiving such a notice for a tax debt, a lien could be in place. 

You should be able to search online to find out whether a tax lien exists on your property. State offices that maintain these records can include:

• Register of deeds
• County recorder
• County treasurer or tax collector
• Secretary of state

If you find that a lien exists and the tax debt is valid, you’ll need to decide what to do about it. 

How do I get rid of a state tax lien?

Just like federal tax liens, the best way to get rid of a state tax lien is to pay what you owe in full. If you can’t pay in full, your state may allow you to set up a payment plan to clear the debt. 

If you owe state income tax debt, contact the state tax agency to discuss payment options. If you owe property taxes, you’ll get in touch with the agency that assesses and collects taxes at the county level. 

How to appeal a tax lien

You have the right to appeal a tax lien, either federal or state. At the federal level, you can appeal the proposed filing of a Notice of Federal Tax Lien or the lien itself. 

The two forms used for appeals are:

1. Form 9423, Collection Appeal Request: Notifies the IRS that you disagree with a proposed tax lien action and want to appeal it. You can file this notice before or after a Notice of Federal Tax Lien is filed, or when a request for discharge, subordination, or withdrawal of lien is denied. 
2. Form 12153, Request for a Collection Due Process or Equivalent Hearing: Used to appeal liens when a final notice is issued or when the IRS is set to move ahead with a tax levy. 

A Collection Appeals Request (CAP) typically takes less time to resolve than a request for Collection Due Process (CDP). Either one can halt IRS collection actions against you until your appeal is resolved. Talking to a tax professional can help you decide which appeal to file. 

States set the guidelines for when you can appeal a tax lien and how to do it. California, for instance, allows you to appeal tax liens through an online portal, by mail, or by fax. 

If you want to appeal a state or federal tax lien, it’s important to act fast. Deadlines might limit how long you have to appeal before a tax lien or levy takes effect. 

What happens if I ignore a tax lien? 

Ignoring a tax lien can have serious and long-lasting consequences. Here’s what can happen if you fail to address a tax lien:

1. Increased financial penalties: The longer you ignore a tax lien, the more interest and penalties can accrue on your unpaid taxes. This can increase the total amount you owe, making it harder to resolve the debt over time.
2. Wage garnishment: If the debt remains unpaid, the government may garnish your wages. This means a portion of your paycheck will be automatically deducted and sent to the IRS or your state tax authority to satisfy the lien.
3. Asset seizure: In extreme cases, the government can seize and sell your assets to pay off the lien. This could include your home, car, or other valuable property. Seizure typically happens after repeated warnings, but it’s a risk if the lien is left unresolved.
4. Impact on selling or refinancing property: A tax lien can prevent you from selling or refinancing your property. Because the lien is attached to your property title, you must pay off the lien before any transaction can be completed. This could complicate real estate deals and limit your financial flexibility.
5. Credit and borrowing limitations: Although federal tax liens no longer appear on your credit report, lenders and potential creditors can check public records and see if you have a tax lien. Ignoring a lien can make it harder to obtain loans, credit, or even certain jobs that involve financial responsibility.
6. Potential legal action: If a tax lien remains unresolved, the IRS or state tax authority can take legal action against you. This could include filing lawsuits or obtaining court judgments to collect the unpaid debt. Legal action can lead to more severe consequences, such as liens being placed on additional assets or bank accounts.

Ignoring a tax lien can lead to increased financial strain, limited financial options, and even asset loss. To avoid these consequences, it’s crucial to address the lien as soon as possible.

How to prevent a tax lien from being issued

Preventing a tax lien is all about staying ahead of your tax obligations, even if you’re struggling to pay what you owe. Here are practical steps you can take to avoid a tax lien:

1. File your taxes on time: Even if you can’t pay the full amount, always file your tax return on time. The IRS and state tax authorities are more lenient with taxpayers who file on time, even if the payment is late. Filing late can result in additional penalties and increase your risk of a lien.
2. Set up a payment plan: If you owe more than you can pay at once, contact the IRS or your state tax authority and set up an installment agreement. This allows you to pay off your debt over time, reducing the likelihood of a lien being issued. As long as you’re following the agreed payment plan, the government generally won’t place a lien on your property.
3. Request an extension or offer in compromise: If your financial situation is especially difficult, you may be eligible for an offer in compromise, which allows you to settle your tax debt for less than the full amount owed. You can also request an extension to pay your taxes, giving you extra time to gather the funds without risking a lien.
4. Communicate with the tax authority: The worst action you can take is to ignore letters from the IRS or state tax agency. If you have trouble paying, reach out to explain your situation. The government often offers multiple programs and options for taxpayers, but you must stay in touch and be proactive.

By taking these steps, you can reduce your chances of a tax lien being placed on your property.

How tax liens affect credit and borrowing

A tax lien can have serious consequences for your credit score and your ability to borrow money. Here’s how:

1. Credit score impact: Although federal tax liens no longer appear on your credit report due to changes that major credit bureaus made in 2018, they can still affect your creditworthiness indirectly. For example, if your lien leads to wage garnishment or seizure of assets, this could affect your ability to keep up with other debt payments, which could lower your credit score.
2. Difficulty getting loans: Lenders may see tax liens as a red flag because they indicate unresolved financial issues. A tax lien may not appear on your credit report, but lenders can check public records and find out whether you have one. This can make it harder to secure loans or other forms of credit. Lenders may be reluctant to offer financing to someone with an unresolved lien.
3. Refinancing or selling property: A lien on your property can prevent you from refinancing a mortgage or even selling your home. The lien must typically be paid off before the title can be transferred or refinanced. This can complicate real estate transactions and make it difficult to access home equity.
4. Higher interest rates: If you are able to secure a loan, having an unresolved tax lien could result in higher interest rates. Lenders may view you as a higher-risk borrower and charge more to offset the potential risk of non-payment.

In short, a tax lien can limit your financial flexibility and make it more difficult to access credit, buy or sell property, or secure affordable interest rates.

FAQ

Can tax liens be purchased?

Yes, tax liens can be purchased, but this typically applies to property tax liens issued by local governments rather than federal or state income tax liens. Many local governments sell tax lien certificates at auctions.

When you purchase a tax lien certificate, you’re essentially paying off the property owner’s unpaid taxes. The property owner then owes you the debt, along with interest, instead of the government. If the debt isn’t paid, you may eventually have the right to foreclose on the property.

How long can property taxes go without being paid?

The length of time property taxes can go unpaid before triggering a tax lien varies by state. Typically, if property taxes are unpaid for one to three years, a lien is placed on the property. After a lien is issued, the property owner must pay the back taxes, plus interest and penalties, to avoid further action like foreclosure.

Are liens public record?

Yes, tax liens are part of the public record. Once a lien is filed, it is recorded in public documents, and anyone—including lenders, potential buyers, or credit agencies—can access this information. This is one of the reasons tax liens can be so damaging to your financial reputation.

Can tax liens expire?

Yes, tax liens can expire. For federal tax liens, the IRS has a 10-year statute of limitations from the date the tax was assessed to collect the debt. If the IRS does not collect the debt within that period, the lien will automatically expire, unless the IRS extends the collection period through legal action. State and local tax liens may have different time frames, depending on the specific laws of each state.

What’s the difference between a tax lien and a tax levy?

A tax lien is a legal claim the government places on your property when you owe unpaid taxes, signaling that it has a right to your assets until the debt is paid. While it doesn’t mean immediate seizure, it affects your ability to sell or refinance property and can harm your credit. 

A tax levy, however, is a direct action where the government seizes your property, such as bank accounts, wages, or even physical assets, to satisfy the debt. A lien serves as a warning and claim, while a levy is the enforcement action that follows if the debt remains unresolved.