How Taxes Can Affect Your Credit Score

“Death and taxes may be certain, but we don’t have to die every year.” –Unknown

While April 15th (or 17th in this case) may not be your favorite day of the year, it certainly should not be ignored. Unless you are filing an extension, your state and federal tax returns are due by midnight. Owing money to the government doesn’t necessarily affect your credit score. Failing to repay your tax debt certainly can, however.

Unpaid tax debt will lead to penalties and fines. While the IRS is willing to let you establish a payment plan, the amount you owe and your monthly payments can appear on your credit report. In some cases the IRS will issue a tax lien against you.

Because a tax lien is publicly recorded, all three credit bureaus will report any of your outstanding tax debt. This will severely lower your credit score. Furthermore, an unpaid tax lien can remain on a credit file indefinitely per the Fair Credit Reporting Act. The good news, however, is that the IRS announced a policy change in 2011 that allows a tax lien to be removed from your credit history once it is repaid.

Be sure to make your payments on time to avoid fees and penalties. As with any other debt situation, you should repay your tax debt as soon as possible. It may be easier said than done, but it’s certainly worth the effort.

Written by

Credit Simplicity is an online knowledge base that offers easy-to-understand information on credit scores and credit reports. Our mission is to provide accurate and reliable credit score information so that all people can understand, monitor, and strengthen their personal credit rating.

1 Response to "How Taxes Can Affect Your Credit Score"

  1. Debt Buster says:

    Great article! Some people may find themselves in situations where they cannot fully repay their tax debt. They can, however, avoid negative credit impact by working with the IRS.

leave a comment