No one likes to find themselves in a position of debt, but it’s one that’s all too common for many Americans. More than half of Americans have some form of existing debt, after all, and many have multiple forms of debt occurring all at once.
In some instances, this debt can lead to what is known as a tax lien. Tax lien causes can vary from case to case, but generally speaking, a tax lien is a legal claim the federal government can claim against the property you own when you owe significant money to them.
What causes an IRS tax lien and how does it impact a person’s day-to-day life? Read on and we’ll walk you through what you need to know.
Understanding Tax Liens
So what is a tax lien and what might cause the existence of one? It’s an important question to understand if you currently owe money to the federal government.
When an individual is behind on payments or owes a large debt to the federal government, the government has a legal right under US law to seize their property. These assets can then be stripped or sold to help cover the costs of the money owed.
A tax lien is simply a legal claim to an asset a person owes, not the seizing itself. The government might put a tax lien on a home, a vehicle, or any other number of potentially valuable assets.
You can think of a tax lien as a warning meant to spur you into action. If you fail to pay the money you own once a tax lien is in place, the government could introduce a tax levy, which includes the actual seizure of these assets. It could also include the direct garnishing of your wages.
Impact of a Tax Lien
Whether the government has a tax lien on a house or on another asset entirely, you’re going to be looking at some changes to your life. There are a lot of potentially negative impacts to having a tax lien claim against your property.
That’s even before these assets are potentially seized. The government will likely file a public notice of the tax lien, meaning credit reporting companies can take note and dock your credit score by a large margin. While these liens don’t appear directly on reports any longer, they still can do a lot of damage.
You’ll then find it more difficult to take on a number of important actions, including financing new purchases or finding the money you need to pay back what you owe in the first place.
Tax Lien Causes & Effects
It’s important to understand what the tax lien causes are if you are in a situation where you owe some money to the federal government.
A tax lien is the government’s way of increasing pressure on those in debt. Understanding how the ins and outs of these liens work can be important in dealing with your financial future.