Wage garnishment in US payroll law describes a legal procedure where one’s earnings are withheld by an employer according to a court order to pay a debt or legal obligation. Garnishments are usually a percentage of an employee’s compensation rather than a dollar amount.
Types of wage garnishment
A few examples of wage garnishment include:
- Child support
- Unpaid taxes or credit card debt
- Defaulted student loans
- Medical bills
- Outstanding court fees
What is a garnishment in payroll?
After receiving a wage garnishment court order, an employer should immediately notify the employee in writing, either through Form 668 or a letter describing the the wage garnishment order, the amount to be taken from each payment, and the how long the wages will be garnished.
When notified of an order to garnish wages, an employer must make the court-ordered deductions from an employee’s wages and direct payments to the specified agency or creditor.
How are payroll wage garnishments issued?
When employers receive a garnish order, they’ll need to respond to the order, send proof of worker employment, and repost their earnings. The court may also ask the employer to send additional information before garnishing. Only an employee’s disposable income can be garnished.
Most creditors must provide a court order to garnish wages. Federal law stipulates how much employers can take from an employee’s paycheck. The amount of garnishment pay is based on the employee’s disposable earnings (funds left over after taxes, social security, Medicare, and so on).
Which wages can be garnished?
For most garnishments, Title III of the federal Consumer Credit Protection Act (CCPA) mandates that the amount of pay garnished should be based on an employee’s “disposable earnings,” or the the amount remaining after federal and/or state deductions.
Disposable earnings salary payments, bonuses, sales commissions, and retirement plan and pension earnings. Tips don’t usually qualify as garnishment, though service charges are considered earnings.
Most wages can be garnished, including:
- Hourly wages
What are the obligations for employers?
Employers have several responsibilities during wage garnishment. Employers must follow the garnishment order immediately start withholding and remitting payment. IRS wage garnishment and levy paperwork will guide employers on how initiate wage garnishment as well as any relevant contact information.
Legally, employers must comply with every garnishment request. Employers must withhold funds until the employer pays the amount in full, the creditor files a written notice of termination with the court, or the court appoints a trustee and stops the wage garnishment order.
How much of an employee’s wages can be garnished?
The maximum amount of wages garnished depends on the garnishment, but they usually range from 15% of disposable earnings (for student loans) to 65% of disposable earnings (for child support).
Some states have laws that differ from federal wage garnishment legislation. In this case, employers must follow state laws calling for a lesser garnishment. Before wage garnishment, employers need to understand their state’s laws. Employees will always be allowed to keep a percentage of their paycheck for general living expenses. Here’s a breakdown of the different types of debt and their wage garnishment percentage:
- Alimony or child support: Up to 50% of a worker’s disposable earnings if the worker supports a spouse or child, or up to 60% if the worker is not
- Student loan default: Up to 15% of a worker’s disposable pay is typically withheld until the defaulted loan is paid in full or garnishment status is removed
- Unpaid taxes: The IRS determines employees standard deductions and number of dependents with a maximum amount of 50%. Wage garnishment rates depend on the state.
- Consumer debt: Wage garnishment depends on an employee’s income and pay schedule with a 25% ceiling.
Can an employer refuse to garnish wages?
Garnishing wages may not be comfortable for employers and employees alike, but employers are legally obligated to carry out garnishments until it ends.
What are disposable earnings?
Disposable earnings is the amount that is left after legally mandated deductions. Disposable income includes the employee’s total compensation, mandatory deductions such as federal, state, and local taxes, state unemployment insurance contributions, Social Security taxes, salaries, bonuses, sales commissions, and retirement plans and pensions.