What is a Federal Tax Lien?

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  • Written By: Felicia Dye
  • Edited By: Heather Bailey
  • Last Modified Date: 31 January 2020
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In the United States (US), a federal tax lien is a claim that the Internal Revenue Service (IRS) places on the property of individuals who have overdue income taxes. This claim may be laid on any property a person owns, including wages, savings accounts, and real estate. It will usually remain in effect until a person's debt is satisfied. Before such action can be taken, however, there is a process that must be followed.

Owing the US government money and failing to make an effort to pay can result in the harsh terms of a federal tax lien. Wages are often one of the main focuses of this action. When placing a lien against a person's earnings, the IRS will contact the employer and require him to garnish a specific portion. If the full debt exceeds the amount that can be obtained during a single pay period, the maximum, which is usually a substantial percentage, is generally taken from each paycheck until the debt is satisfied.

It is in a similar manner that funds are seized from bank accounts. The IRS can find a person's assets and require the holder to freeze them, making the portion that the IRS wants to take unavailable. When the IRS seizes property, it is generally sold and the proceeds are credited toward the debt.


Before the IRS places a federal tax lien on a person's property, a certain course of action is required. This begins with the assessment of debt. Although the IRS may be aware that a person has not paid taxes, the bureau is not allowed to attach a lien unless it has calculated an exact figure. Once this information is determined, the debtor needs to be informed.

A Notice and Demand for payment should be sent to the debtor informing her of how much she owes and the date by which it must be paid. If a person ignores this demand and allows the allotted time to lapse, the result is generally a federal tax lien. It should be noted, however, that although the required steps in this process may seem short, the IRS generally affords a debtor ample opportunities to settle her debt on more tolerable terms. Furthermore, before a federal tax lien goes into effect, each debtor is given the opportunity to appeal.

This action is generally only allowed once a person's debt and the fees related to the federal tax lien have been paid. This does not mean that there are no further consequences. The IRS warns that a federal tax lien can have more adverse effects on person's life than the seizure of assets. It can affect her access to credit and it can affect her ability to obtain housing.



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