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Personal Finance Tax Relief

What is a Tax Lien?

Updated Apr 05, 2023   |   8 mins read
Written by Stephanie Colestock  
Reviewed by Chloe Moore, CFP®
Updated Apr 05, 2023

They say that there are only two guarantees in life: death and taxes. If you fail to pay (or fall behind on) your taxes, however, there’s one more guarantee you can count on: a tax lien.

According to IRS data, taxpayers either owed more than they paid in 2020 or failed to file their taxes entirely to the tune of nearly $75 billion. This resulted in more than 2.6 million taxpayer delinquency investigations—the IRS’s fervent attempt to collect the money they are owed. When collecting delinquent taxes, one tool that a government entity can use is a tax lien.

In this article:

What is a tax lien?

A tax lien is a lien, or a legal claim of debt, against an individual’s or business’s asset in response to tax delinquency. Tax liens are often placed on property to secure the taxes due.

The IRS can place tax liens on a taxpayer’s assets if delinquent taxes are owed. Many state governments also allow tax liens on property, though some states (such as Virginia) do not.

Liens can be placed on a variety of assets, including one’s:

  • Home or other real estate
  • Personal property, like your vehicle
  • Financial assets, such as bank accounts
  • Wages

How does a tax lien impact me?

A tax lien can affect an individual in several ways. So it’s important to avoid one at all costs.

Tax liens will no longer show up on your credit report, so one won’t directly impact your credit score. However, if the IRS files a public notice of your lien, this could be detrimental to a business or when trying to take out certain loans or lines of credit.

Having a tax lien can also impact the sale or refinance of your home. Liens are easily discovered during a title search, which must be resolved before you can complete the transaction.

Lastly, a tax lien can lead to a levy of certain assets, such as your bank accounts, or even garnishment of your wages. This means the government can step in and seize funds from your accounts to satisfy the debt or redirect a portion of your paycheck until the debt is repaid.

How do I know if a tax lien has been issued against me?

Before issuing a tax lien, the IRS will provide you with ample warning in the form of notices and letters. These notifications will inform you of your tax shortage (or delinquent balance), as well as how to contact the IRS if you have any questions.

The IRS will typically send numerous notices warning you of an impending lien before it’s filed. It’s important not to ignore these—even if you’re unable to pay right away or don’t believe the debt is correct—as a lien (and later, a levy) can be detrimental in many ways. Instead, you should call to confirm or dispute the debt and, if necessary, request an installment plan for payments.

If you’re unsure whether a lien is issued against you, there are a few ways to check. The easiest is to call the IRS’s Centralized Lien Operation department at 800-913-6050.

What do I do if a tax lien was issued in error?

If you believe that an IRS tax lien was issued erroneously, you can dispute the filing and request a withdrawal. Either the IRS Collection Due Process (CDP) or Collections Appeal Process (CAP) can be initiated depending on whether you’re disputing a notice in the following situations:

  • Before or after the lien is issued
  • Before or after levied property is seized
  • After a payment installment agreement is terminated, rejected, or modified

You may be able to dispute an erroneous lien over the phone. You can also request a hearing—where you can represent yourself or bring along a representative on your behalf—by filing a Form 12153. This form is used to request a Collections Due Process or equivalent hearing to dispute the notice.

How long does a tax lien last?

The IRS can pursue a delinquent tax debt for up to 10 years after the liability is assessed; there are a few exceptions that allow this period to be extended, however. The IRS can also choose to file a tax lien at any point during that 10-year period.

Many federal tax liens will be automatically released once the assessed tax debt reaches the 10-year point, assuming that the IRS has not chosen to refile a Notice of Tax Lien. State tax liens may follow different rules, however, so it’s important to check with your state’s tax office to see how long that lien will follow you.

How do I get rid of a tax lien?

If you’re facing a tax lien for delinquent tax debt, there are a few options to eliminate it.

  • You can pay your tax bill. The simplest way to remove a tax lien is to remove the tax debt itself. By paying your tax bill—and any interest or penalty charges that may have been added—your lien and any claim to your assets will be removed.
  • You can establish a payment plan. If you cannot satisfy a delinquent tax debt all at once, you can request a payment plan. This agreement allows you to spread your tax payments over a period, which may make it more manageable for your budget.
  • You can request a discharge from your lien. Filing for a Certificate of Discharge may allow you to have a federal tax lien removed from a specific property. If you are trying to sell or refinance a home with a federal lien, for instance, discharging that lien from the property may make this process possible, although you’ll still owe your debt.
  • You can apply for a Certificate of Subordination. If you are trying to purchase a home or take out another type of loan, you may still be able to do so—even with a lien in place—with a Certificate of Subordination. This certificate keeps your IRS lien in place but allows another creditor to move ahead of the IRS regarding claims to your assets. This may make it easier for a creditor to approve your application.
  • You can apply for lien withdrawal. With a withdrawal, the IRS will remove its Notice of Federal Tax Lien from public record. This may make it easier for you to purchase a home or take out other loans. However, you will still owe your tax debt, and a withdrawal is only available to taxpayers who are up-to-date on current tax filings and have remained in compliance for the last three years of tax filing.
  • You can file an offer in compromise. With an offer in compromise, you may be able to settle your federal tax debt for less than you owe. This option may be available to taxpayers with a financial hardship or those who cannot pay their full tax liability without creating a hardship for their family.

No matter your situation, there are many options to choose from, and assistance is available to help you pay your back taxes. Consult with a tax attorney or tax relief firm depending on the amount of debt you have and the complexity of your situation.

What happens if I ignore a tax lien?

Regardless of your delinquent tax debt or your ability to satisfy the balance, the worst thing you can do is ignore the IRS. Ignoring notices and letters from the IRS will lead to a lien, or claim, on your property, which will affect your ability to sell property, refinance accounts, take out new loans, and more.

Ignoring a lien, though, will lead to an eventual levy or garnishment. This can result in your property, assets, or even your pay being seized. While a federal tax debt can be discharged in 10 years, depending on the situation, the chances are high that you won’t be able to escape your IRS tax debt.

If you’re struggling to pay your taxes or have a delinquent balance that you can’t satisfy, reach out to the IRS to see what options are available to you. The IRS will help you repay your debt in full or negotiate a payment plan for the debt so that no further action is taken. You may also be able to dispute the debt (if there’s an error) or even request that a lien be withdrawn or discharged while you work at paying down the debt.

State and federal taxes are an unavoidable part of life. Meeting those tax obligations on time will not only help you avoid penalties and fines but also ensure that you avoid the devastating effects of a lien or levy.