Nobody enjoys paying taxes. Despite the potential dent in your pocketbook, however, you should always pay your taxes on time. Failure to do so can result in a tax lien, under which the government may be able to foreclose on property, garnish wages or take other measures to collect the debt. Tax liens also go on your credit report, which may hurt your financial record for many years, even after you pay the lien.
Credit Reports
Your credit report is similar to a financial resume for your credit activities. It lists information such as credit accounts, loans and outstanding balances. Negative items on the report -- such as missed payments, late payments or loan defaults -- stand out like blemishes to potential lenders and other financial agents. But the information doesn't stay on your report indefinitely. With regard to tax liens, however, the information may remain on your report for many years.
Tax Liens
A tax lien is a particular negative piece of information on your credit report. According to an article on Kiplinger.com, a federal lien may potentially remain on your report for as long as it takes you to repay it, plus an additional seven years. While federal liens have a potentially indefinite duration, according to Vision Credit Education, Inc. -- a nonprofit credit counseling organization -- often, the lien is taken off after 15 years. Regardless, tax liens may remain on your credit report longer than bankruptcies or other negative information.
Withdrawals
A recent policy change may provide some relief to consumers with federal tax liens. The Internal Revenue Service may withdraw its tax lien from your credit report if you pay the lien in full or enter into a repayment plan. You must initiate the withdrawal request by filing IRS Form 12277. This form of relief only applies to federal tax liens. You must check your state laws to determine if any similar relief exists at that level.
Correcting Information
Credit reporting is an imperfect science; errors happen. For example, you may notice that the tax lien you paid off is listed as "unpaid" on your report. If you find errors on your report, take steps to correct the information as soon as possible. Contact the reporting agency and provide information proving the error wrong. According to the Federal Reserve Bank of San Francisco, it may take 45 days to fix the error.
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