02 Oct Involuntary Deductions (Garnishments)

Involuntary deductions are wage attachments issued by a court or government agency to withhold money from your paycheck. In the world of Payroll, the wage attachments are referred to as garnishments. If an employer receives a wage attachment, it has to be processed or penalties can be imposed. Wage attachments are deducted from an employee’s disposable earnings which are determined by calculating the overall gross minus taxes.

Withholding Priorities

When wage attachments are received, they are processed in the following priorities:

• Child support orders
• Bankruptcy orders
• Federal administrative garnishments
• Federal tax levies
• Student loan garnishments
• State tax levies
• Local tax levies
• Creditor garnishments

There are exceptions in the order of priorities. For example, federal tax levies take priority over all wage attachments except for child support orders pre-dating the levies. The order in which the two wage attachments are received doesn’t matter. If an employee has a federal tax levy in place and a child support order is received pre-dating it, the child support order will take priority.

Common Types of Wage Attachments

Child support orders are the least favorite for many employees. In many instances, child support orders are issued due to late payments being made based on an agreement made between the parents not ordered by the court. Also, divorce decrees are major sources for child support orders. There is no requirement for state child support agencies to send a notification to the employee prior to sending the withholding order to the employer. Sometimes the first notification the employee receives is from their Payroll Department.

If an employee supports another family, 50% of disposable earnings can be withheld or 55% if arrears are involved. For our family free employees, 60% of disposable earnings can be withheld or 65% if they are skating in arrears. The order remains in place until a release is received from the child support agency.

Bankruptcy orders are received from a bankruptcy trustee, who is responsible for paying the creditors the balances an employee owes. Usually, a flat dollar amount is requested per paycheck and the order must remain in place until further notification is received from the bankruptcy court or trustee.

Federal administrative garnishments are issued by a federal agency which allows up to 15% of disposable earnings to be withheld for debts not related to taxes to be repaid.

Federal tax levies are issued as a last resort to collect a tax debt owed. Usually, if a levy is issued from the IRS, the employee ignored all previous correspondence sent. Not a good idea! In most instances, the amount withheld for the levy will be far greater than the amount based on an agreement. The levy deduction amount is the employee’s take home pay minus the exempt amount as determined by the IRS. Any deductions in place prior to the levy can be used in determining the take home pay. However, the employee isn’t allowed to have any new payroll deductions while the levy is in effect.

The levy remains in place until a release of levy (Form 668-D) is received. After an employer receives a levy, the employee still has the option to contact the IRS to get it released and set up a payroll deduction agreement. To eliminate the headaches, it’s best to respond when you receive the first piece of correspondence.

Student loan garnishments are issued when an employee becomes delinquent on payments. For state orders, up to 15% of disposable earnings can be withheld. Federal orders are slightly different, up to 15% can be withheld or the amount the disposable pay exceeds 30 times the minimum wage. Once an order is received, the employer must provide 30 days notice before withholding for the garnishment. The notification period gives the employee time to work out an arrangement with the agency. The order remains in place until it is released or a payment arrangement is received.

Creditor garnishments are issued for debts owed by an employee. The order is issued by the court and the withholding amount is governed by the Consumer Credit Protection Act (CCPA). In all states, the withholding amount can’t exceed the lesser of 25% of disposable earnings or the amount the disposable earnings for the week exceeds 30 times the federal minimum wage. It’s important for the employer to be familiar with state garnishment laws as well. In some instances, the laws are more favorable for the employee compared to federal laws.

Conclusion

The information provided in this blog post is a high level overview of wage attachments also known as garnishments. There are many ins and outs to each type of garnishment and it would be impossible to cover all of the information in a single blog post.

As an employee, it’s important to know your rights when it comes to having your wages garnished. Your employer can’t impose disciplinary action and your employment can’t be terminated. The employer can be fined if adverse actions are taken. If a termination occurs, the employer can be ordered to reinstatement employment.