A large tax bill can be stressful and overwhelming. But, what if you can’t afford it? With tax season upon us, many people are wondering if an unpaid bill from the IRS can affect their credit. While credit bureaus do not include tax bills or payments in their credit reports, there are still a few circumstances where your tax situation could indirectly affect your credit score and worthiness:
- Paying taxes with a loan or credit card: If you are unable to pay your taxes, then you may be tempted to use a loan or credit card to pay off the balance. While the original bill from the IRS will not show up on your credit report, the loan or credit card will. To keep this from harming your credit, take out as little as possible and be sure to make your monthly payments on time.
- Receiving a Notice of Federal Tax Lien: A Notice of Federal Tax Lien represents the government’s claim on a taxpayer’s assets and properties until their taxes are paid. While these used to show up on credit reports, a policy change in April of 2018 made it so they are no longer included in your credit score. However, Federal Tax Liens are still public documents that lenders, landlords, and employers may discover. This can impact your ability to open new lines of credit and may even make it difficult to rent or find a job.
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What to Do if You Can’t Pay Your Taxes
Failing to pay your taxes could lead to all sorts of major problems, such as larger debts and fees, poor credit worthiness, or eventual property seizure. That’s why it’s important to take immediate action if you know you won’t be able to afford your taxes. Here are some options to consider if you can’t pay your taxes:
- Take out a personal loan: Using a personal loan or credit card to pay off your taxes will mean that your bill will show up on your credit report. However, doing so can help spread your payments out into more manageable monthly amounts while ensuring your balance with the IRS is paid off in time.
- Apply for a payment extension: A payment extension gives you more time to pay all of your taxes, essentially pushing the deadline back by up to 6 months. This may be a good option for individuals who just need a little more time to come up with their full tax amount.
- Apply for an offer in compromise: If you’ve experienced undue financial hardship, then you may be able to apply for an “offer in compromise”, where you suggest an amount that you think you can afford. The IRS will consider your income, expenses, and other financial information to determine whether or not they will accept your offer.
- Request an installment plan: An installment plan allows you to make monthly payments on your owed taxes, ranging anywhere from a few months to five or more years. This allows you to pay off your balance over a longer period of time, though you may be responsible for interest and penalties.
Can Taxes Affect Your Credit? in Vancouver WA
Serving Greater Vancouver WA