Filing federal tax forms is one of those annual events that most people view as a hassle or, if you withheld enough from your paychecks, a boon. Of course, not everyone can afford the taxes they owe, particularly in the era of the Covid pandemic. In fact, the back taxes owed by US taxpayers exceeds $130 billion dollars.
Collecting on the back taxes is part of the IRS’s job, which is what leads to those unnerving bills they send out. If that doesn’t work, they may issue a federal tax lien against you or your business. Not sure what a federal tax lien is or how it works?
Keeping reading for a quick overview.
What Is a Federal Tax Lien?
A federal tax lien is essentially a public document that the IRS issues that say it has a claim on your assets, up to the amount you owe. Ironically, the document is meant less for the specific taxpayers in question, than it’s meant for other creditors. The tax lien essentially says that the government gets first dibs in terms of collecting on what it’s owed ahead of any other creditors.
How Does a Federal Tax Lien Work?
In practice, a lien can cause a lot of havoc in your life. For example, the notice itself can make businesses and banks leery about extending you any kind of credit.
If you have a federal tax lien on your property, such as a home, it can make selling that home very difficult. At a minimum, it adds a lot of extra hoops that must jump through. You can learn more about selling property with a lien at www.ibuysd.com.
An IRS tax lien also means they can seize your property to try to settle the debt. That can mean anything from garnishing wages to taking vehicles or even homes and auctioning them off.
Resolving a Federal Tax Lien
The good news is that IRS would much prefer that you simply resolve the debt than carry through with collection actions or property seizure. Collections and seizures are costly and time-consuming.
If you pay off the tax debt, it also lifts the lien against you. You can make a lump-sum payment and resolve the debt in full. The IRS also offers payment plans that let you resolve it over time.
If you are in true dire straights financially, you can also apply for an offer in compromise. This lets you settle the debt for less than the owed sum, but it’s relatively complicated and rare.
Dealing with a Federal Tax Lien
A federal tax lien can complicate your life a lot, depending on how aggressively the IRS pursues collection. You can lose real estate, struggle securing credit, and face wage garnishment.
If you owe back taxes, picking a repayment option is your best course of action. It helps stop or prevent aggressive collection action and will ultimately resolve your federal tax lien.
Looking for more home or property finance tips? Check out the posts over in our Property and Home Information sections.