Tax liens hurt your credit scores tremendously. Under the Fair Credit Reporting Act (FCRA), tax liens may be reported indefinitely if they are unpaid, and then once you’ve paid (or settled them) they remain seven years from the date they were paid. That can keep them on your credit reports for a very long time!
However, under the “Fresh Start” program announced by the IRS in 2011, you can request to have a tax lien removed if you have paid it; or if you owe $25,000 or less and enter into an installment agreement to pay the tax and allow the IRS to take the monthly payments from your bank account.
(There will be a probationary period of a few months to ensure you are making payments.) If you meet either of those qualifications, you’ll submit Form 12277 requesting that the lien be withdrawn. It doesn’t happen automatically, and even after you submit your request it can take a few months. However, this ‘fresh start’ can be a tremendous help for many.