One method that they use to collect taxes is a tax lien. A tax lien works by securing real property or personal property. For example, a tax lien placed against your home would prevent the sale of the home unless the tax debt was first paid in full. It is part of the public legal record when a tax lien is placed against your property. This public record will result in the tax lien showing up on your credit report. Though the exact amount varies, you can expect a tax lien to reduce your credit score by about 50 points.
It is possible for you to have a tax lien to be withdrawn from your property when certain payments arrangements are made. With the credit withdraw, the tax lien is removed from your credit report. Conversely, a paid off tax lien will be marked as paid, but the notation of the lien will remain for up to seven years. In some cases, a paid off tax lien can also be withdrawn from your credit report.
In most cases, the placement of a tax lien is the only way that a tax debt will impact your credit score. The good news is that even if you owe back taxes, there are many ways that you can avoid having a tax lien placed against your property. By paying off the debt in a timely manner, entering into a payment arrangement or otherwise settling the debt, the IRS will not place a lien against your property.