Not paying your taxes on time can result in a tax lien(s) which becomes a matter of public record. The FICO score formula considers derogatory public records such as tax liens, judgments & bankruptcies very seriously, because researches have shown that people who have tax liens on their credit reports are more likely (up to 40% chance) to become at least 90 days late on their payments. That’s twice the average for the whole population!
Because of this, even a single tax lien on your credit score may have a significant negative impact on your credit score. Just how much depends on your specific credit standing. Surprisingly, those with a high credit rating will see a bigger drop in their score then those with already low credit score.
So what to do if you owe taxes but don’t have the funds right now?
If you’re thinking about not filing this year and maybe pay the overdue amount next year – think again. Not only you’re risking your credit, you’ll also incur penalty fees.
A much better course of action is to contact the IRS and let them know your circumstances. They can help you work out an agreement.