Does Irs Debt Show On Your Credit Report?

Should you have outstanding taxes to the IRS, you could be wondering if this is anything shown on a credit report. Still, credit reports often indicate various types of delinquent commitments such as credit card overdrafts and missing student loan payments. Would your credit report similarly show your tax debt as well?

The simple answer is no; the IRS will not forward your tax debt to any of the three main consumer credit reporting companies—Equifax, Experian, and TransUnion. This implies that your credit report will not show any debt owing to the IRS in the form of back taxes if you have any. Your creditworthiness or score will not suffer from the debt you owe the IRS.

Having said that, even if IRS debt does not show up on your report, the activities the agency takes to collect unpaid taxes can show up on your report at last. Should you neglect to pay or settle your tax obligation over an extended period, the IRS will apply additional policies affecting your credit.

This discussion is focused on describing how the IRS collects tax debts.

The IRS usually uses slow methods in trying to collect unpaid taxes. It will first let you know that it intends to collect the money using letters and notifications. Should the bill remain outstanding, the IRS collecting agents might make calls. The IRS may choose to just submit the Notice of Federal Tax Lien or apply a wage or bank account levy for more significant tax debt.

Of all the aforementioned collection techniques, the federal tax lien is the one that would show up on credit reports and be listed with the credit bureaus. A tax lien is a legal claim on taxpayer property used as collateral or security for the debt. Records of the second kind, the Public Notice of Federal Tax Lien, are kept at the local county's county recorder's office Your credit record will show this tax lien filing if the IRS has reported it to credit bureaus.

The Impact of Tax Liens on Your Credit Rating

The impact a federal tax lien will have on your credit largely depends on your credit situation: The impact a federal tax lien will have on your credit largely depends on your credit situation:

• For those able to maintain a nearly perfect credit history, a tax lien could reduce credit scores by 100 points or more. The tax lien will appear under public records in your credit report and may be viewed as an indication that you have defaulted on a major financial obligation. This black mark can indeed negatively affect an otherwise, perfect record of creditworthiness.
• Those with fair or mediocre credit scores often see the impact of the tax lien as only marginal and added to the imperfection of their credit record. Generally, those having late payments and collection accounts already reflected in the credit reports will observe a lesser impact after the filing of a tax lien.
• However, for individuals with a very poor credit rating, the federal tax lien may only slightly affect the poor ratings. It means that if your report has recent late payments, loan defaults, foreclosures, or other major negative credit entries, the second tax lien will not add much to your risk level.

In most circumstances, the tax lien will continue to be reported on your credit report for seven years from the date of filing. To mitigate this past credit mistake, ensuring complete and correct submission of annual tax returns and timely payment of owed taxes in the coming year will go a long way. If you later fully settle your IRS tax debt you can ask the IRS to remove the tax lien from your credit report before the seven years are up through a process known as a lien withdrawal or lien release. This can enable the credit scores to regain their footing much faster.

IRS Tax Debt: Management and Resolution

If you have outstanding tax liabilities to the IRS, then you need to take measures to resolve the tax issue before collection actions increase or a tax lien is filed and recorded on your credit report. Here are some smart strategies for resolving IRS tax debt.

• Hire an IRS agent to agree on an appropriate payment plan - Talk to an IRS agent and then find out how much can pay per month towards your IRS debt. This helps to stop the IRS from pursuing further collections on the tax debt while making payments towards the same.
• IRS Offer in Compromise - If you cannot afford to pay the full amount of your tax debt, complete this application to find out if you will be eligible to pay less than what you owe. This means that you need to meet certain guidelines on your income, expenses, and equity in assets.
• Apply for Currently Not Collectible – People who have short-term issues such as illness or job loss may apply to postpone the collection process by the IRS. This suspends IRS activities for as long as one year.

This program can give penalty relief and adjustment of some collection costs which are included in a taxpayer’s tax obligations if one qualifies for it. Interests may also be capped after issuing several notices.

File for bankruptcy protection – In the most severe cases, one might file for Chapter 7 or Chapter 13 bankruptcy to discharge some IRS tax debt or stop collections efforts. There is a serious negative effect on your credit but you can become compliant on future tax returns.

It is recommended to consult a tax attorney or certified public accountant to go over the advantages and disadvantages of each strategy regarding your particular taxation problem. Clearing IRS tax debts early is advantageous in preventing credit reports and scores from being negatively affected.

Ready to boost your credit score? Call +1 888-804-0104 now for the best credit repair services near you! Our expert team is here to help you achieve financial freedom and improve your credit. Don't wait—get started today!