Paying-Taxes-And-Your-Credit

Delinquent Taxes And Credit

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People rush to the post office on April 15th trying to get their tax returns and payments postmarked on time to avoid late payment penalties and interest from the Internal Revenue Service. Though you’re right to be worried about getting in trouble with the IRS, you don’t have to sweat extra because being a few days late with your tax payment usually won’t hurt your credit score.

Installment Agreements
If you can’t pay what you owe at tax time, the IRS may allow you to enter an installment agreement to pay your tax bill – with interest – over time rather than in one lump sum. For credit report purposes, these installment agreements get reported as loans. So, if you sign up for an installment payment and then fall behind on your payments, those delinquencies can show up on your credit report and hurt your credit score.

Tax Liens
Ignoring the IRS when you owe money won’t help you protect your credit score either. According to Bankrate, if you owe $5,000 or more, the IRS can typically place a tax lien on your property. Tax liens are public records, which mean that the credit bureaus can find out about them without the IRS even having to report to them directly.

Duration of Impact
Most negative information – like a late payment on your installment agreement with the IRS – stays on your credit report for seven years. However, tax liens are treated very differently than a late payment or even a default on a loan. Instead of coming off your credit report seven years after the occurrence, a tax lien won’t come off of your Experian credit report until seven years after you paid off your tax lien or 10 years after the tax lien was in place. So, the sooner you pay Uncle Sam, the sooner the clock starts ticking on how long it affects your credit report and score.

 

About the Author
Mark Kennan is a freelance writer specializing in finance-related topics. He has worked as a sports editor and published articles on a number of online outlets.