And here’s how Trump’s payroll tax holiday could affect Social Security.
What is a tax lien?
A tax lien is a legal claim that a federal, state, or local government places on your property and assets when you fail to pay your taxes. If you neglect to satisfy your tax liability after the government sends you a demand for payment, you might get a lien on your property.
Each year, it’s necessary to file tax returns and pay tax debts. Failure to do so may result in the imposition of a tax lien. The lien allows the government tax authority to use a tax levy to seize your assets, including financial accounts and both personal and business property.
Tax liens are a matter of public record. They appear on your credit report and may decrease your chances of getting a loan or refinancing your assets. Even if you pay a lien, it remains on your report for up to seven years from the date of filing. Unpaid liens remain on your report for 10 years from the date of filing.
The Internal Revenue Service (IRS) offers various payment options to help you settle your debt if you have difficult doing so, and as long as you’re making the effort to pay, you’ll avoid a lien. If you’ve had a lien placed on your assets, the IRS will remove it within 30 days of you paying your back taxes.
The IRS may extend what’s called an offer in compromise to the taxpayer if he or she is unable to negotiate a payment plan, meaning that the agency doesn’t expect to receive the full amount due within a reasonable time frame and hopes to recoup what it can.
Has a tax lien hurt your ability to get a personal loan? Bankrate can match you with lenders who help with challenged credit.
Tax lien example
Mario neglected to pay his taxes last year and the government placed a lien on his plumbing business. When he tried to take out a business loan for a new pipe-fitting system, he discovered that banks refused to extend any credit to him. He paid his outstanding tax debt in full and 30 days later the lien was lifted, but his credit took much longer to recover.