Hello and welcome back for Part 2 of our 2 part blog about getting a tax lien taken off of your credit report. In Part 1 we talked about what exactly a tax lien is and why it negatively affects someone’s credit report. In Part 2 we actually get into the meat of the subject and show you exactly how you can qualify for the new Fresh Start program and what you need to do to have your tax lien withdrawn. So if you’re prepared, let’s go!
The first thing to do is simply determine if you qualify. There are a number of things that determine qualification and they include;
- If the tax liability that you owed has been satisfied or paid and your actual tax lien has been released.
- For the last three years you’ve complied completely with your individual tax filing, your business filing, and information returns (where applicable)
- You are now current on any estimated tax payments that you owe as well as federal tax deposits (where applicable)
It’s important to note that even if you haven’t yet pay the IRS exactly what you owe, you may still qualify for the new Fresh Start program if the taxes you owe are less than $25,000 or if you have set up a direct debit installment agreement with the IRS that lets them take payments out of your bank account automatically. There are, to be sure, a number of other requirements you’ll need to meet, one of them being that you’ve made at least 3 of your direct debit installment payments and that any previous installment agreement has not been defaulted upon. The rest of the qualifications are on the IRS website.
Step 2 is to fill out and send in the application to have your tax lien withdrawn. If you’ve read the qualifications above and you believe you qualify, you’ll need to fill out IRS form 12277, the Application for Withdrawal. It’s a simple form with one page that needs to be filled out as well as one page of instructions, and needs to be completed and sent to the IRS. If they approve your withdrawal, they’ll send you an answer that says “will file form 10916(c), Withdrawal of Filed Notice of Federal Tax Lien, in the recording office where the original NFTL was filed and provides you a copy of the document for your records.” Once they do this, it means that you’ve got a written record that your tax lien has been withdrawn. Congratulations!
Once this happens you should directly ask the IRS to notify any and all credit reporting agencies of the tax lien withdrawal (by mail) or, if you don’t want to rely on the federal government to do this for you, you can simply supply a notice to the major tax reporting agencies yourself. After they process your request, your tax lien will be withdrawn from your credit report and your newly refreshed tax scores will be recorded as if the tax lien never existed.
Keep in mind something very important; this is NOT a process that you need a credit repair firm to handle for you, so if you are considering paying one because they’ve told you that you can’t do it yourself, they’ve been giving you false information. You can ask your tax professional to help you do this of course, but frankly it’s quite simple and something that most people should be able to accomplish on their own.
The final question that needs to be answers is simply this; will your tax lien withdrawal help your credit score? The fact is that, in most cases, getting this removed will help your credit score to go higher. How much higher depends on where your credit score actually was when the tax lien was issued and what’s happened between the time it was issued and today. A number of other factors that will affect your exact score include how old the lien was and any other information that you already had on your report when it was filed.
With that in mind, reviewing your credit score before the lien is removed is a good idea, as well as following up with a new credit report a few months after it’s been taken care of.
Of course in some cases, such as when an item on your credit report is very old or a person has extremely bad credit to begin with, having a tax lien taken off of their credit report might not help their scores at all. Still, the fact remains that not having a tax lien on your credit report is something that definitely will help it either now or down the road, when you finally get your other financial affairs in order.