One of the most important things one need not joke with is a credit score; especially if you have needs that involve borrowing money. Refusal to pay a debt might reduce your credit score when the creditors report such credits to the credit bureaus.
Before now, the long-standing law from the federal government was that tax debt should not be reported to credit bureaus in a bid to protect the privacy of individuals involved. As a result, if you owe Uncle Sam some money, it will not show on your credit report.
An exception to this, however, is when Uncle Sam files a tax lien on your debt. Liens, in such cases, are reported publicly, and they get to the credit bureaus without much help from Uncle Sam.
With time, however, the privacy policy from Uncle Sam might change. According to a recently prepared report from the Government Accountability Office, it prepared a report titled Federal Tax Debts: Factors for Considering the Proposal to the Report Tax Debts to Credit Bureaus. Based on a report from the GAO, there was a suggestion that when tax debts are reported to the credit bureaus, some benefits will follow like:
More revenue since tax debtors get an incentive to pay up
Taxpayers will want to stay out of debt
Provide credit bureaus and users with a pretty full credit history for better lending and other business tasks.
Stop loan applicants from acquiring new debt unless they pay off the existing one.
By the end of the 2011 fiscal year, the total debt of millions of businesses and individuals amounted to almost $400 billion in federal unpaid tax. As a result, such a policy change will hit many people.
The Government Accountability office mandated that should there be any change in reporting, one needs to consider various issues on which debt should need reporting – for instance, if minimum balance is important before reporting a debt.
Also, there was the concern of ensuring that any information available to such a credit agency is not doctored and misused. Besides, there is also the concern that direct reporting of tax debt to such credit agencies and the lien filings might make it possible to have duplicate reporting on a taxpayer’s credit report.
Such horrible mistakes and misinformation will dearly cost the victim. As a result, it calls for the need to have the means to dispute whatever Uncle Sam reports to credit agencies.
Above all, there is the concern that If Uncle Sam reported credits to credit agencies, it could backfire. This means that some taxpayers would instead not file their tax since they know that owing Uncle Sam will result in their credit report taking a hit.
However, the good news is one need not worry about Uncle Sam reporting the tax debt to the credit agency right away. This can only happen when the tax law changes.
Will Your Payment Plan Influence Your Credit Report?
One of the most common pieces of advice to avoid issues with Uncle Sam is to set up a payment plan with Uncle Sam immediately after you are informed of a tax bill. If you set up a payment plan with Uncle Sam, there will be no report to the credit agencies.
The law restricts uncle Sam from sharing your personal information. However, lenders might discover notice of Federal Tax liens, so it is essential to take steps to prevent your tax debt from escalating to such a stage.
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Rosovich & Associates, Inc.