Tax Lien

AAA

DEFINITION of 'Tax Lien'

A legal claim by a government entity against a noncompliant taxpayer's assets. Tax liens are a last resort to force an individual or business to pay back taxes. To get rid of a lien, the taxpayer must pay what he or she owes, get the debt dismissed in bankruptcy court or reach an offer in compromise with the tax authorities. Federal and state governments may place tax liens for unpaid federal or state income taxes, while local governments may place tax liens for unpaid local income or property taxes.

BREAKING DOWN 'Tax Lien'

If the taxes remain unpaid, the tax authority can then use a tax levy to legally seize the taxpayer's assets (such as bank accounts, investment accounts, automobiles and real property) in order to collect the money it is owed. Tax liens are publicly recorded and may be reported to credit agencies. These two features of tax liens effectively prevent the sale or refinancing of assets to which liens have been attached, and prevent the delinquent taxpayer from borrowing money.

RELATED TERMS
  1. Self-Directed IRA - SDIRA

    A retirement account in which the individual investor is in charge ...
  2. Silent Automatic Lien

    A lien that does not appear in any public record. This is a method ...
  3. Back Taxes

    Taxes that have been unpaid in the year that they were due. Taxpayers ...
  4. Tax Service Fee

    A legitimate closing cost used to ensure that mortgagors pay ...
  5. Tax Liability

    The total amount of tax that an entity is legally obligated to ...
  6. Tax Lien Certificate

    A certificate of claim against property that has a lien placed ...
Related Articles
  1. Retirement

    Tax Tips For The Individual Investor

    We give you seven guidelines to help you keep more of your money in your pocket.
  2. Taxes

    Don't Put Off Your Year-End Tax Plan

    From sales tax deductions to credit reports, check out what items should be on your financial checklist.
  3. Home & Auto

    Should You Buy A House At Auction?

    The traditional real estate market isn't the only place to conduct your home search. Auctions also bring many buying opportunities.
  4. Taxes

    IRS Asset Seizures: Could It Happen To You?

    If you can't pay your taxes, know that the IRS has many avenues for collecting what you owe.
  5. Credit & Loans

    How Long Bankruptcy Will Affect You

    How long will the sad chapter of bankruptcy impact the rest of your life?
  6. Credit & Loans

    Guidelines for FHA Reverse Mortgages

    FHA guidelines protect borrowers from major mistakes, prevent lenders from taking advantage of borrowers and encourage lenders to offer reverse mortgages.
  7. Taxes

    What IRS Form 1023 Is Used For

    To be treated as a tax-exempt organization, start by filling out this form.
  8. Taxes

    Late with Your Taxes? Grab IRS Form 4868

    Fill out this form to get a few more months to file your tax return. But remember, April 15 is still the payment due date if you owe taxes.
  9. Investing

    What’s Holding Back the U.S. Consumer

    Even as job growth has surged and gasoline prices have plunged, U.S. consumers are proving slow to respond and repair their overextended balance sheets.
  10. Economics

    The Problem With Today’s Headline Economic Data

    Headwinds have kept the U.S. growth more moderate than in the past–including leverage levels and an aging population—and the latest GDP revisions prove it.
RELATED FAQS
  1. How do I avoid a tax lien on my property?

    The best way to avoid a tax lien on your property is to make sure you pay all your state, municipal and federal taxes in ... Read Full Answer >>
  2. What types of liens are seen as good and which are bad for my credit?

    Creditors that allow purchases to be made through financing often require property to be pledged against a credit account; ... Read Full Answer >>
  3. How can I invest in tax liens?

    An individual can invest in tax liens by identifying available liens and then participating in auctions where property tax ... Read Full Answer >>
  4. What is the difference between a lien and an encumbrance?

    A lien represents a monetary claim levied against property to secure payment of an obligation of the property owner, while ... Read Full Answer >>
  5. How does the marginal tax rate system work?

    The marginal tax rate is the rate of tax that income earners incur on each additional dollar of income. As the marginal tax ... Read Full Answer >>
  6. Are spousal Social Security benefits taxable?

    Your spousal Social Security benefits may be taxable, depending on your total household income for the year. About one-third ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Election Period

    The period of time during which an investor who owns an extendable or retractable bond must indicate to the issuer whether ...
  2. Shanghai Stock Exchange

    The largest stock exchange in mainland China, the Shanghai Stock Exchange is a nonprofit organization run by the China Securities ...
  3. Dead Cat Bounce

    A temporary recovery from a prolonged decline or bear market, followed by the continuation of the downtrend. A dead cat bounce ...
  4. Bear Market

    A market condition in which the prices of securities are falling, and widespread pessimism causes the negative sentiment ...
  5. Alligator Spread

    An unprofitable spread that occurs as a result of large commissions charged on the transaction, regardless of favorable market ...
  6. Tiger Cub Economies

    The four Southeast Asian economies of Indonesia, Malaysia, the Philippines and Thailand. Tiger cub economy indicates that ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!