The information in this article is up to date for tax year 2023 (returns filed in 2024).
Taxes are a big financial responsibility. So you may be wondering if and how taxes affect your credit score.
If you fail to pay your taxes, the IRS could file a Notice of Federal Tax Lien against you. Before 2018, a tax lien would be reported on your credit and could impact your credit score.
Today, that is no longer the case. However, there are still indirect ways that taxes—and failing to pay them in a timely manner—could impact your credit score.
Here’s what you need to know.
Do taxes affect your credit score?
In short: no. Paying or not paying your taxes will not directly affect your credit score. However, there are ways paying taxes (or not paying taxes) can impact your credit indirectly.
Does the IRS report to credit bureaus?
The IRS does not report tax debt to credit bureaus. Under the Taxpayer Bill of Rights, taxpayers have a right to privacy and confidentiality—meaning that the IRS will not disclose your tax information to third parties.
What happens if you don’t pay taxes or pay late?
Late penalties and interest
If you don’t pay your taxes on time, you may incur late penalties and interest on your tax bill. This on its own won’t affect your credit score.
However, if you are having trouble making tax payments, and use credit to cover your debt, this could put you in a tough financial situation.
For instance, if you overstretch your budget and miss payments on other debts in order to cover your taxes, those defaults could end up on your credit report. Additionally, if you open a new credit card to pay your taxes, that could
- result in a hard inquiry on your credit, leading to a temporary hit to your credit score.
- increase your credit utilization ratio (your outstanding credit balance compared to your credit limit). Credit utilization is a key factor in determining credit scores, and a high utilization ratio can quickly reduce your credit score.
Tax liens
If you fail to pay taxes at all, the IRS may file a tax lien against you.
A tax lien is the government’s legal claim against your property when you neglect or fail to pay a tax debt. A lien attaches to your assets, including personal and business property, vehicles, securities, and any future assets you acquire under the duration of the lien.
While tax liens are no longer directly reported to credit bureaus as of 2018, they are public record. This means lenders and credit officers can find your tax lien record, which could impact your ability to get loans or new credit cards, and even potentially affect your ability to rent if your landlord checks the public record.
Do IRS installment payments affect your credit?
No, IRS installment payments will not affect your credit.
If you think you will have trouble paying your taxes on time, you can apply for a payment plan to pay in installments for an extended timeframe. Late payment and payment plans are not reported to your credit. Plus, if you request an IRS payment plan, the IRS is generally prohibited from levying or filing a tax lien, meaning your payment plan status will never be shared on your credit report.
How to keep taxes from affecting your credit score
Your taxes won’t affect your credit score directly. But to ensure your tax situation doesn’t impact your credit indirectly, be sure to
- Pay taxes on time and in full.
- Apply for any needed extensions or payment plans.
- Avoid paying taxes on credit when possible.
- Apply for penalty relief if you qualify.
For help navigating tax filing and payment, lean on ezTaxReturn.com.
Start filing today.
The articles and content published on this blog are provided for informational purposes only. The information presented is not intended to be, and should not be taken as, legal, financial, or professional advice. Readers are advised to seek appropriate professional guidance and conduct their own due diligence before making any decisions based on the information provided.
