Complete Guide To State Tax Lien: The Best Ways To Keep Your Assets Protected

what is a state tax lien

As a taxpayer, you could be subject to a state tax lien. However, you could prevent this from happening if you know the basic tax facts, including the conditions that might give the state government a reason to attach a lien to your property.

You must steer clear of such mistakes to avoid their repercussions. This article will guide you on everything there is to know about tax liens.

What is a State Tax Lien?

A state tax lien is a legal claim the state places on a property. This applies to various assets including real estate and vehicles. The lien serves as a guarantee for payment of back taxes to the government. It takes priority over claims by any lender or creditor with whom the taxpayer has defaulted.

The process of enforcing a state tax lien occurs in stages. It starts from the time the taxpayer receives a notice from the state regarding the payment of the tax debt. Failure to pay the tax dues or reach a settlement with the state despite the follow-up notices will prompt the government to attach a lien to the taxpayer’s property.

Conversely, the state lien may be released once the taxpayer settles the debt, whether in full or in installments. The worst thing that could happen if you receive a tax lien is that the state would have the authority to put the asset on sale so that it could recover money owed in unpaid taxes.

What are the Effects of a State Tax Lien?

If the government issues a lien on your assets due to back taxes, you may face unpleasant consequences.

It could damage your credit score

Although a tax lien may not appear in your credit history, it’s included in the county records where you live. That won’t send a positive message to creditors or lenders should you need to obtain a loan or qualify for financing since they would know that the government already has a stake in your property. As such, they’re less likely to get paid if you encounter financial troubles.

It may become difficult for you to sell or refinance your assets

Suppose you want to sell your house property, but it’s on a tax lien. In that case, you must pay off your state tax debt first to get a clear title for prospective buyers. The problem is that realtors performing title searches are bound to see which homes have a tax lien attached to them. That means they won’t be able to sell or refinance your property.

It may affect your spouse’s financial standing

Although one’s state income tax liability remains the responsibility of that taxpayer, a tax lien may jeopardize tax refund claims for spouses filing joint tax returns. Here, the innocent spouse must file a claim seeking individual relief. Or, if a property you’ve previously owned is on a lien, your spouse’s clean tax record won’t remove the state lien either. 

The government may seize your assets

Unpaid or unresolved tax liens may lead to a state tax levy. This time, the government goes beyond putting its claim or interest in your property and instead secures the permission to take it. If this happens, the government will use the levy to seize and sell your property to collect the amount you owe, including fees and penalties.

5 Ways to Remove a State Tax Lien

You could break free from a lien on your property or assets to put your tax status in order and avoid further damage to your finances.

1. Pay the taxes you owe

Undeniably, this is the most straightforward method of getting off a tax lien. The government will lift all liens once you fully pay your tax liabilities. With your outstanding debt cleared, the government no longer has a hold on your property or assets.

2. Agree to a payment plan

If you can’t afford to pay your tax debt in full, the government may still consider releasing the tax lien through a payment plan. Depending on your payment agreement with the state’s Collections Department, you may be given options on how to settle your tax debt.

3. Apply for a Certificate of Discharge

You may remove a lien from a property if you meet the conditions in obtaining a Certificate of Discharge. With the document, you won’t automatically get rid of your back taxes. However, you can sell or refinance the piece of property discharged from the lien. Then, you can use the money to either pay off your entire tax debt or at least start making payments to the government.

4. Request a withdrawal of notice of tax lien

This workaround involves having the public Notice of State Tax Lien withdrawn. However, you are still liable for the tax due. Similar to the Certificate of Discharge, you’ll still owe the government unpaid taxes. The difference is that the withdrawal gives only the government—not any other creditor—the right to the property.

5. Apply for the subordination of your tax lien

Subordination allows you to turn to creditors to obtain financing for a mortgage or loan before the government can make a claim and place a lien on your assets. 

Get Experts Help

Your tax obligations are non-negotiable. If you fail to fulfill them, then the state government can implement legal measures like a state tax lien to enable you to pay off your outstanding debt. It’s your responsibility to know how a tax lien works and how to avoid getting one in the first place.

If you are faced with a tax problem and need a negotiation expert to help you settle the issue, reach out to us at Peace of Mind Tax Help. Our team of tax resolution services and mediation experts can help you minimize your tax liability. Contact us today for the tax relief you need!

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