How do tax liens affect my credit and how can I get them removed?
A federal or state tax lien is the government’s legal claim on your property when you fail to pay tax debt. Although the three major credit reporting agencies removed most tax liens from consumer credit reports starting in 2018, a filed Notice of Federal Tax Lien (NFTL) or state lien remains a matter of public record and can still influence lenders, title companies, and anyone doing a public-record search.
This article explains exactly how tax liens affect borrowing and property transactions, the difference between release, withdrawal, subordination, and discharge, and practical steps you can take to remove or limit a lien’s impact. I’ve worked with clients for over 15 years who faced mortgage denials, refinance obstacles, and stalled business deals because of liens. The good news: there are clear, documented ways to resolve most liens.
Important sources referenced below include the IRS (Notice of Federal Tax Lien, Form 12277) and the Consumer Financial Protection Bureau on credit reporting changes. This is educational information and not individualized tax or legal advice. For personal guidance, consult a tax attorney or enrolled agent.
Why a tax lien still matters even if it’s not on your credit report
- Public-record impact: When the IRS files a Notice of Federal Tax Lien it is recorded with local government offices (county recorder or similar). Lenders, title companies, and some manual underwriting teams check these records before approving mortgages, refinances, or property sales.
- Underwriting and risk: Lenders interpret a lien as a senior claim on your assets. Even if a credit score isn’t directly reduced by the bureaus, a lien can cause loan denial, higher rates, or larger down-payment requirements.
- Property sales and refinancing: A lien can block the transfer of clear title. Buyers and mortgage companies usually require liens to be resolved or subordinated before closing.
(IRS: “Notice of Federal Tax Lien”; Consumer Financial Protection Bureau: credit reporting guidance.)
Types of tax-lien outcomes and what they mean
- Release: The IRS files a Certificate of Release of Federal Tax Lien when the tax debt that created the lien is paid in full or becomes unenforceable. This removes the lien claim but does not erase records that the lien existed.
- Withdrawal: A withdrawal (IRS Form 12277) removes the NFTL as though it never filed for most purposes, including credit reporting reasons. Withdrawals are limited by eligibility rules in the IRS Fresh Start and other policies.
- Subordination: The IRS may subordinate its lien to allow a new creditor (typically a mortgage lender) to move ahead of the federal lien. Subordination helps you refinance or get a new loan but does not remove the lien.
- Discharge of property: A discharge removes the lien only from a specific parcel of property so that it can be sold or refinanced while the lien remains attached to other assets.
For detail on withdrawal under Fresh Start and how the IRS handles withdrawals, see FinHelp’s coverage of the IRS Fresh Start withdrawal of an NFTL and our guide on resolving tax liens, withdrawal, and subordination.
- Understanding the IRS Fresh Start Withdrawal of a Notice of Federal Tax Lien: https://finhelp.io/glossary/understanding-the-irs-fresh-start-withdrawal-of-a-notice-of-federal-tax-lien/
- Resolving Tax Liens: Removal, Withdrawal, and Subordination: https://finhelp.io/glossary/resolving-tax-liens-removal-withdrawal-and-subordination/
Common pathways to remove or limit a tax lien
- Pay the tax debt in full
- Effect: The IRS will issue a Certificate of Release within 30 days after the liability is satisfied (check the IRS “Notice of Federal Tax Lien” guidance for timing and procedures). A release removes the IRS’s claim though historical filings may still be visible in public records.
- When to use: When you have access to funds or can borrow against other assets to retire the liability.
- Enter an approved payment plan (Installment Agreement)
- Effect: Entering and staying current in a direct debit installment agreement may prevent new collection actions and can allow for lien withdrawal in certain cases under IRS policy. However, an existing NFTL may remain until paid or otherwise resolved.
- Note: Eligibility for withdrawal or subordination often requires compliance with the agreement.
- Offer in Compromise (OIC)
- Effect: If the IRS accepts an OIC, the tax debt is settled for less than the full amount. The IRS releases or withdraws the lien consistent with its acceptance and payment terms.
- Tip: OICs are documented and can take months to process; work with a practitioner experienced in offers.
- Request withdrawal (Form 12277)
- Effect: Withdrawal removes the NFTL from the public record in many cases and improves credit-reporting outcomes where the lien had been included previously. Form 12277 is the IRS application for withdrawal; the IRS evaluates eligibility including full payment, payment plans, or other criteria.
- Source: IRS Form 12277 and Fresh Start guidance (see IRS.gov and FinHelp Fresh Start article linked above).
- Subordination or discharge for specific property
- Effect: Subordination allows new financing to take priority over the federal tax lien, facilitating refinancing or new mortgages. Discharging a parcel allows sale of a single property while the lien remains attached to other property.
- Use-case: If you only need to free one home to sell or refinance, look into discharge or subordination rather than full lien removal.
- Dispute inaccurate liens on credit reports or public records
- Effect: If a lien is incorrect (e.g., paid but still listed), dispute it with the entity that published the record and with the credit bureaus and county recorder. The Consumer Financial Protection Bureau explains your rights for errors on credit reports.
- Action: Gather proof of payment, lien release letters, and recorded documents; file disputes and follow up in writing.
(See also FinHelp’s guide: How to Get a Tax Lien Released After Full Payment: https://finhelp.io/glossary/how-to-get-a-tax-lien-released-after-full-payment/)
Practical timeline expectations
- Release after full payment: The IRS generally files a Certificate of Release within 30 days after full payment, but county recording schedules and processing can add time.
- Withdrawal decisions: Form 12277 requests are evaluated case-by-case; timing varies from a few weeks to several months depending on IRS workload and complexity.
- Credit-reporting effects: Major credit bureaus stopped routinely including federal tax liens and civil judgments in consumer credit files starting in 2018. However, lenders that perform public-record title searches can still see recorded liens.
Real-world examples and outcomes
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Example: A homeowner with an NFTL was denied a refinance. After negotiating a short-term subordination with the IRS and the lender, the owner refinanced at a better rate while continuing to repay the tax debt. Subordination allowed the mortgage lender to get first claim ahead of the IRS on that property.
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Example: A small business owner fully paid a tax debt and received a certificate of release. After the county recorder updated the record, the owner successfully closed a new line of credit previously blocked by the public lien.
These are typical scenarios I’ve seen in practice; exact results depend on documentation, lender policies, and the state where records were filed.
What lenders look for and how to prepare
- Provide documentation: If you’re applying for a mortgage or loan, bring IRS releases, payment plans, and any Form 12277 decisions to the lender and title company.
- Ask for subordination or discharge if appropriate: Lenders sometimes coordinate with the IRS to subordinate the lien so the loan can close.
- Expect manual underwrites: Even when a lien doesn’t show on a credit report, manual underwriting teams will request title searches. Plan for that timeline.
Checklist: Steps to take now
- Order a copy of your tax account transcript and lien records from the county recorder.
- Pull your credit reports from Equifax, Experian, and TransUnion at AnnualCreditReport.com.
- Contact the IRS or state taxing authority to confirm the lien’s status and any outstanding balance.
- Consider payment in full, an installment agreement, Offer in Compromise, or Form 12277 withdrawal — depending on eligibility.
- Get professional help if the lien is complex or tied to business assets.
Common mistakes to avoid
- Assuming a lien has no impact because it’s absent from a credit score — lenders may still find it.
- Ignoring notices from the IRS or state taxing authority.
- Relying on unverified online ‘fix-it-fast’ services; legitimate resolution takes documentation and time.
Where to find official guidance
- IRS — Notice of Federal Tax Lien and Form 12277: https://www.irs.gov (search “Notice of Federal Tax Lien” and “Form 12277”)
- Consumer Financial Protection Bureau — information on credit reports and disputes: https://www.consumerfinance.gov
For deeper FinHelp coverage of related topics, see:
- Understanding the IRS Fresh Start Withdrawal of a Notice of Federal Tax Lien: https://finhelp.io/glossary/understanding-the-irs-fresh-start-withdrawal-of-a-notice-of-federal-tax-lien/
- Resolving Tax Liens: Removal, Withdrawal, and Subordination: https://finhelp.io/glossary/resolving-tax-liens-removal-withdrawal-and-subordination/
- How to Get a Tax Lien Released After Full Payment: https://finhelp.io/glossary/how-to-get-a-tax-lien-released-after-full-payment/
Professional disclaimer: This page is educational and based on current IRS policy and consumer-protection guidance as of 2025. It is not tax, legal, or financial advice for your specific situation. Consult a qualified tax professional, attorney, or enrolled agent before taking action on a tax lien.
