How Federal Tax Liens Impact Employment

You’ve probably heard the old saying that there are only two things in life that are certain: death and taxes. A Federal tax lien is the literal documentation for the latter. The Federal government issues these liens to recover unpaid taxes, and they are proof that when it comes to their money, the IRS is a well-oiled and ruthless machine.

In fact, once a Federal lien has been issued, the government has the power to seize assets, attach property and more. It can prevent the person who is subject to the lien from getting loans, and may bar them from certain jobs in your organization.

In short, if you’re hiring, tax lien searches should be part of your employee background screening process, and here’s what you need to know about the process.

It’s Not Top Secret… But Close

Tax liens are what is commonly known as “secret” liens, in that the Federal government is prohibited, by law, from disclosing anything at all about them with anyone other than the tax payer in question. So, if you thought you could just call up the IRS and ask about a particular candidate, think again.

What the government does do, however, is issue a notice of Federal tax lien (or NFTL) that is lodged with the deeds office in county in which they reside. If you know how to search those records, you can establish that there is a lien against a particular person.

Credit bureau also record tax liens on individual reports, so if credit checks are part of your hiring process, you should find out during that search.

But You Might Not Be Able to Ask..

The challenge with employee screening in the U.S. is that it’s not only a Federal matter. Different legislation in each state could impact your ability to even request a credit report from a prospective employee, with a few exceptions.

Generally, even in strict states like California, which typically doesn’t allow employers to request credit reports, if you can show that the report is relevant to the position (for instance, a direct financial position), you can still request the information.

As with everything, your tax lien search request needs to be justified, relevant, and non-discriminatory, and if you’re not sure whether your process fits into those criteria, you should definitely seek professional or legal advice.

How Tax Liens Affect Employees, and You

While you can’t always find out if current or prospective employees have tax liens, you can be sure that if they do, there will be an impact.

Employees who are in financial distress are always a risky gamble, depending on the severity of the problem. Owing taxes to the Federal government is usually a pretty severe one! Employees who have tax liens may also be barred on working for projects for state or federal government too, which may impact your company’s chances when bidding on projects.

Finally, the IRS also has the power to garnish wages, so you may find that you have more administrative tasks when paying employees who do have tax liens, which can make the process of managing your payroll more complex.

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