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Having to garnish an employee’s wages can be challenging for you and your payroll department. In addition to federal wage garnishment rules, you’ll also need to take into account state laws. And penalties for noncompliance can be onerous. In this guide, we’ll take you through how wage garnishment works so you’ll have a better understanding of the process.
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Wage garnishment is a legal procedure in which an employer is required to withhold a portion of an employee’s wages as payment for outstanding debt. While the process is typically initiated by a court order, in some situations, a court order may not be required. For example:
- For unpaid taxes, the IRS is authorized to initiate wage garnishment via an IRS levy.
- In the case of federal student loans, the loan holder can order an employer to garnish an employee’s wages without applying to court.
- In many states, child support agencies can garnish an employee’s wages without a court order.
Types of Garnishment
From a legal perspective, a garnishment is a court order instructing a third party to seize an individual’s property to pay for an outstanding debt. There are two types of garnishment:
– Wage garnishment. As its name indicates, in this type of garnishment an individual’s employer is required to garnish the individual’s wages.
– Non-wage garnishment. In the most common cases of non-wage garnishment, or bank levy, creditors apply to the court to order an individual’s bank to withhold money from the individual’s bank account as payment for outstanding debt.
Wage garnishment should also be distinguished from a voluntary wage assignment. In a voluntary wage assignment, the employee comes to an agreement with a creditor for their employer to pay the creditor a portion of the employee’s wages.
Common Situations for Garnishing Wages
The following are some of the most common situations in which the garnishment of wages is ordered:
– Alimony or spousal support– Child support– Outstanding tax debt– Student loan default– Bankruptcy
– Other consumer debts
It’s crucial for you, as an employer, to understand how the wage garnishment process works, because failure to properly garnish an employee’s wages can expose your business to noncompliance penalties.
How Employers Are Notified
When garnishment is ordered, both the employer and the employee will typically receive a notice from either the court or from a government or state agency. Depending on where the order comes from, the notice you receive might be called a writ of garnishment, an income withholding order or an IRS or tax levy.
The notice you receive will include instructions for how to begin garnishing your employee’s wages, as well as resources to contact if you need any assistance. You should also consider consulting with an attorney to make sure you understand what you need to do to comply with the order.
What Is the Maximum Amount That Can Be Garnished?
Depending on the circumstances, you will be required to garnish either a fixed amount or a percentage of your employee’s earnings. Under the U.S. Department of Labor’s Consumer Credit Protection Act (CCPA), earnings are defined as compensation paid or payable for personal services.
This includes:
(Video) Wage Garnishments
- Wages
- Salaries
- Commissions
- Bonuses
- Pension or retirement payments
- Employment-based disability plan payments
- Lump-sum payments received for personal services rendered
Additionally, Title III of the CCPA sets out limits on the amount of wages that can be garnished. These limits are based on an employee’s disposable income, which is the income that remains after mandatory deductions have been made (for example, for federal and state taxes).
The following table provides a brief overview of these limitations.
| Reason for garnishment | Maximum % of weekly disposable income that can be garnished | Example calculations |
|---|---|---|
| Alimony and child support |
|
|
| Federal student loans | 15% of weekly disposable income | If the individual has weekly disposable income of $1,000, the maximum amount that can be garnished is $150 |
| Federal or state taxes | Title III limitations do not apply to federal or state taxes. The IRS may exempt part of the levy on your wages. | N/A |
| Ordinary garnishments not covered above (i.e., most consumer debts) | Weekly amount cannot be more than the lesser of:
This means if an individual’s weekly disposable income is:
|
If the individual has a weekly disposable income of:
|
State laws also set limitations on the amount of wages that can be garnished. These laws vary from state to state, and may depend on a number of factors, including the type of debt for which the garnishment is ordered. Your attorney can provide additional guidance about the applicable rules and regulations in your state.
It’s crucial that you act on a garnishment order as soon as you receive it, in order to avoid incurring penalties or fines for noncompliance.
- Inform your employee. You may be provided with a form to fill out to give to your employee. Otherwise, you can set out the details of the garnishment order in a letter or memo to your employee.
- Responding to the order. Some court orders may require you to submit a form in response to the order within a specified time frame.
- When to begin withholding. Unless your instructions state otherwise, you will typically be required to begin withholding the required amount immediately after you’ve received notice. The withheld amounts will need to be sent directly to the third party set out in the notice.
- Reporting requirements. Each authority will have a specific reporting process that you will need to follow. If you have any questions about these requirements, you should always seek assistance, either from your attorney or from the court or relevant government or state agency.
- Employment status. If the employee no longer works for you, you will need to advise the appropriate authority.
- When to stop garnishing. You will need to continue garnishing your employee’s wages until you receive official notification to stop the garnishment.
Challenges to the Order
You must garnish the required amounts from your employee’s wages, even if your employee asks you not to. If your employee decides to challenge the garnishment order, you’ll need to continue complying with the order until you receive official notice that either the garnishment has been removed, or adjusting the amount to be garnished.
If you receive a notice to garnish the wages of someone who’s not your employee, you should inform the relevant authority immediately.
Reimbursement for Administrative Costs
Depending on your state’s laws, you may be able to get reimbursement for administrative costs you incur in garnishing your employee’s wages. Generally, in states that permit reimbursement for wage garnishment associated with child support, you can charge your employee a fee directly. Where the garnishment is related to a debt or a creditor, some states permit employers to collect a fee from the creditor.
Your employee might feel the garnishment order was made in error. In such cases, they will need to understand their rights and perform the appropriate actions required to challenge or dispute the order.
Employee Rights
Employees have certain rights when it comes to garnishment orders, including the following:
- They must receive official notification of wage garnishment
- As discussed above, there are limits on the amount garnished, as set out by federal and state laws
- They cannot be fired on the basis of one wage garnishment order (however, this protection against termination no longer applies if they’re facing more than one wage garnishment order)
Disputing the Garnishment Order
Your employee can also challenge the order if they believe the order is inaccurate or was made in error, or if they will undergo financial hardship as a result.
Error or inaccuracies. The notice your employee received will contain instructions for challenging the order. They will need to set out why they object, as well as provide evidence to prove these reasons.
Financial hardship. In cases of financial hardship, the process for challenging a wage garnishment varies, depending on whether the garnishment is related to a debt, a student loan, child support or unpaid taxes.
For example, your employee can contact the court for assistance, if the garnishment was implemented by court order. If garnishment is related to a student loan default or outstanding taxes, the notice should contain instructions for claiming an exemption on the basis of that hardship, or they can contact the relevant authority for help. For support orders, it’s always best to consult with a family law attorney.
Bottom Line
It’s never pleasant to be notified that you’re required to garnish an employee’s wages. It’s also crucial that you understand what you need to do, and when you need to do it. And because state laws often add another layer of complexity, the best course of action is often to consult with an attorney with experience in wage garnishment matters.
An employer cannot fire an employee because the employee is subject to a wage garnishment order. However, if the employee faces more than one wage garnishment order, they’re no longer protected from termination.
(Video) Unexpected Wage Garnishment: What You Can Do
An employer should only stop garnishing wages when they receive official notification that the garnishment has been removed.
The garnishment law allows up to 50% of a worker’s disposable earnings to be garnished for these purposes if the worker is supporting another spouse or child, or up to 60% if the worker is not. An additional 5% may be garnished for support payments more than l2 weeks in arrears.
Does a wage garnishment hurt your credit? ›
A garnishment judgment will stay on your credit reports for up to seven years, affecting your credit score. But there are a few easy ways to bolster your credit, both during and after wage garnishment.
What does a garnishment look like on a pay stub? ›
A garnishment is listed under other deductions on a pay stub. Title III of the Consumer Credit Protection Act limits the amount of an employee’s earnings that may be garnished and protects the employee from being fired if the pay is for only one debt.
Can you negotiate wage garnishment? ›
It is sometimes possible to negotiate a wage garnishment directly with the creditor. Most creditors want to recoup as much of their debt as possible and may be willing to work out a deal. Build your argument before approaching the creditor.
How can I protect myself from wage garnishment? › 5 Ways to Stop a Garnishment
- Pay Off the Debt. If your financial situation is dire, paying off the debt may not be an option. …
- Work With Your Creditor. …
- Challenge the Garnishment. …
- File a Claim of Exemption. …
- File for Bankruptcy.
How do you respond to a garnishment summons? ›
If you are served with a garnishment summons, do not ignore these documents because they do not directly involve a debt that you owe. Instead, you should immediately freeze any payments to the debtor, retain the necessary property, and provide the required written disclosure.
Will my credit go up after garnishment? ›
A wage garnishment order affects your finances, making it difficult to fulfill your financial responsibilities. In addition, it indirectly impacts your credit history and reduces your creditworthiness to lenders in the future.
Does wage garnishment affect tax refund? ›
Garnishing your refund
If you’re expecting a tax refund but have concerns about creditors garnishing it, you may be worrying too much. Federal law allows only state and federal government agencies (not individual or private creditors) to take your refund as payment toward a debt.
If you cannot pay your debts, it can lead to being sued by the creditor or having your wages garnished. It can also lead to a bad credit score, making it difficult to get a loan in the future. There are many ways that you can protect yourself from this situation.
Is wage garnishment embarrassing? ›
The debt could be for a variety of reasons, such as child support, a credit card judgment or unpaid state or federal taxes. Wage garnishment can be a painful and embarrassing process for the employee.
What are examples of wage garnishments? ›
Wage garnishments are court-ordered deductions taken from an employee’s pay to satisfy a debt or legal obligation. Child support, unpaid taxes or credit card debt, defaulted student loans, medical bills and outstanding court fees are common causes for wage garnishments.
What are the different types of garnishments? › A wage garnishment requires employers to withhold and transmit a portion of an employee’s wages until the balance on the order is paid in full or the order is released by us. We issue 3 types of wage garnishments: Earnings withholding orders (EWO):…
- Home.
- pay.
- collections.
- withholding orders.
- wage garnishments.
Will garnishment follow you to another job? ›
Wage garnishment can follow a debtor from job to job, but it requires separate court orders. This means a creditor will need to request the wage garnishment every time a person changes jobs.
How do you challenge a garnishee order? ›
Usually, a form will be included with the garnishment notice that you can use to write your objection and request a hearing. If it isn’t, ask for one from the clerk of the court that sent you the garnishment notice.
How does ADP handle garnishments? ›
ADP SmartCompliance for wage garnishments helps you: Automate and expedite order receipt processing and administration. Provide agencies visibility of their payments, orders and more in a dedicated portal. Centralize wage garnishments in a single, online system.
How do you hide a garnishment from your bank account? ›
There are 4 ways to open a bank account that no creditor can touch: (1) use an exempt bank account, (2) establish a bank account in a state that prohibits garnishments, (3) open an offshore bank account, or (4) maintain a wage or government benefits account.
What is garnishment protection? ›
The wage garnishment provisions of the Consumer Credit Protection Act (CCPA) protect employees from discharge by their employers because their wages have been garnished for any one debt, and it limits the amount of an employee’s earnings that may be garnished in any one week.
What is an order to withhold? ›
Withholding orders are legal orders we issue to collect past due income taxes or a bill owed to local or state agencies. There are 3 different types of withholding orders we issue: Earnings withholding order (EWOT or EWO)
How do you beat a garnishment? › Here are several options you have available to try to overcome the threat of your wages being garnished.
- Option 1 – Challenge the Wage Garnishments. …
- Option 2 – Negotiate a Payment Plan. …
- Option 3 – Contact a Credit Counseling Service. …
- Option 4 – Consider a Debt Consolidation Loan.
What happens if I can’t pay a judgement? ›
But after a credit judgement ruling, the creditor can take steps to seize part of your salary, freeze your bank account, or even haul away your belongings. It can also charge interest at a court-approved rate, typically in the range of 5 percent to 10 percent, until you pay up.
What are the disadvantages of garnishment? ›
The Disadvantages of Wage Garnishment
You might be required to have up to 25% withheld from your earnings: Having a large chunk taken out of your income can threaten your ability to take care of other debts you must pay.
Does a garnishment ever go away? ›
Some garnishments can run for 60 days, while others last for 20 years. However, the collector may only receive their money until when the debt is paid off. If the garnishment period ends before clearing the debt, the collector can have it renewed.
How do I rebuild my credit after wage garnishment? ›
The two most important things to rebuild your credit and increase your score over time are paying your accounts on time and keeping your credit usage low. Aim only to use 30% or less of your available credit.
Will the IRS let you know before they garnish your wages? ›
The IRS will send a series of notices before taking your wages. Before the IRS levies your paycheck, the IRS must send these notices to your last-known address: A notice and demand for payment (notice numbers CP14, CP501, CP503) A notice of intent to levy (CP504)
Will the IRS stop wage garnishment? ›
If wage garnishment is creating a financial hardship for you, you may be able to get the IRS to stop garnishing your wages temporarily. To declare a financial hardship, you’ll have to call the IRS on the phone.
How much does the IRS take when they garnish your wages? ›
Generally, the IRS will take 25 to 50% of your disposable income. Disposable income is the amount left after legally required deductions such as taxes and Social Security (FICA). There are exceptions to this rule, however, that could protect some or all of your earnings from wage garnishment.
Is garnishment a legal process? ›
If a debtor fails to answer a creditor’s lawsuit within the time allowed, a creditor can garnish wages or bank accounts without first going to court. Other situations are detailed when a creditor can garnish property by obtaining a court order before the case is actually tried.
How long can a garnishment last in Michigan? ›
It is valid for 91 days or until the judgment, interest and costs are paid off, whichever occurs first. As such, the garnishment will continue each pay period for the 91 days or until the debt is paid off.
Can Transworld Systems Inc garnish wages? ›
You have up to 35 days to respond to a lawsuit against Transworld Systems, depending on where you live. If you don’t file an Answer within the deadline, you will lose by default judgment, giving Transworld the right to garnish your wages and put liens on your property.
What is considered disposable income? ›
An employee’s disposable earnings are considered to be your gross income minus any legally required deductions such as taxes and Social Security. The remaining income is eligible for wage garnishments and is considered disposable earnings.
How do I stop a wage garnishment in California? ›
File an Exemption – In California you may be able to stop the Wage Garnishment through filing an exemption. You may be able to have the wage garnishment stop or reduce the amount being garnished if you can show that the money is needed to support you or your family.
What is the most common type of garnishment? ›
Wage garnishment, the most common type of garnishment, is the process of deducting money from an employee’s monetary compensation (including salary), usually as a result of a court order. Wage garnishments may continue until the entire debt is paid or arrangements are made to pay off the debt.
Which states prohibit wage garnishment? › States that prohibit wage garnishment for consumer debt:
- North Carolina.
- Pennsylvania.
- South Carolina.
- Texas.
What is notice of garnishment? ›
e) Garnishment refers to the directive to withhold and release any deposit or monetary interest belonging or owing to a losing party in the possession or control of a third person, bank, or any financial institution.
What is the difference between garnish and garnishment? ›
A court may order a garnishment to help a successful plaintiff collect money damages from a defendant. A garnishment order instructs a third-party who owes money to the defendant to pay some or all of that money to the plaintiff instead of the the defendant. This third party is called a “garnishee.”
What is the difference between garnish and garnishee? ›
Garnishment is an order of the court allowing a creditor to collect the money owed from someone who owes money to the debtor. The person or business who owes money to the debtor is called the garnishee.
Which type of garnishment order usually takes precedence? ›
Child support and alimony court orders have priority over all other garnishments, except federal tax levies. A federal tax levy is prioritized first if it predates the child support or alimony court order.
What happens if I quit my job during a garnishment? ›
However, there are no rules that prevent you from leaving your job voluntarily, or legal consequences for doing so. A wage garnishment order is valid only as long you earn wages. Without a paycheck, a judgment creditor or federal agency has nothing to garnish.
Can HR tell your boss about a wage garnishment? ›
Is Your Boss Notified of Your Wage Garnishment? Yes. While different types of garnishments have different procedures and different rules, typically, your employer will be notified directly of your wage garnishment.
How long is a garnishee order valid for? ›
How long is a garnishee order valid: A garnishee order will be valid until you’ve finished off your debts, or you can negotiate the length of the order via a debt counsellor.
How do you get around wage garnishment? ›
If your wages or bank account have been garnished, you may be able to stop it by paying the debt in full, filing an objection with the court or filing for bankruptcy….
5 Ways to Stop a Garnishment
- Pay Off the Debt. …
- Work With Your Creditor. …
- Challenge the Garnishment. …
- File a Claim of Exemption. …
- File for Bankruptcy.
Can you negotiate after wage garnishment? ›
Try to negotiate
A wage garnishment judgment can be costly and time-consuming for a creditor to obtain and for you to appeal, so reaching a payment agreement early on, if at all possible, is recommended.
Can employees be fired for having a garnishment order issued against them? ›
As an employer, if you receive a court order to garnish an employee’s wages, you are required by law to comply, and you are not allowed to punish or fire the employee because of the garnishment.
What does garnishment mean on a paystub? ›
Wage garnishment is a legal procedure in which a person’s earnings are required by court order to be withheld by an employer for the payment of a debt such as child support.
Can the IRS garnish 100 percent of your wages? ›
Good news: The IRS will not take 100% of your wages. Part of your wages may be exempt from a wage levy, based on the standard deduction and on the number of dependents you have.
What is the maximum wage percentage that can be garnished by an unsecured creditor? ›
As a rule of thumb, the following percentages can be garnisheed from your wages: Under the Wages Act, a regular creditor can garnish your wages up to twenty percent (20%) of your gross income. If multiple regular creditors each have a garnishment against your wages, they must all share in the same twenty percent.
How do garnishments work in Missouri? ›
Under Missouri law, for any workweek, a creditor can garnish the lesser of: 25% of your disposable earnings, or 10% of your disposable earnings if you’re the head of a family and a resident of the state, or. the amount by which your weekly disposable earnings exceed 30 times the federal hourly minimum wage. (Mo.
What is the new Michigan garnishment law? ›
Limits on Wage Garnishment in Michigan
In Michigan, a creditor can garnish whichever is less: up to 25% of your disposable earnings or. the amount of your disposable earnings that’s more than 30 times the federal minimum wage, which is $217.50 (2021 figure). (Mich.
Will garnishment take my taxes? ›
Garnishing your refund
If you’re expecting a tax refund but have concerns about creditors garnishing it, you may be worrying too much. Federal law allows only state and federal government agencies (not individual or private creditors) to take your refund as payment toward a debt.
What is the minimum payment the IRS will accept? ›
The minimum payment is equal to your balance due divided by the 72-month maximum period. If you can’t pay an amount equal to what you owe divided by 72, you will need to complete Form 433-F unless you qualify for an exception.
Can IRS take money out of your bank account? ›
An IRS levy permits the legal seizure of your property to satisfy a tax debt. It can garnish wages, take money in your bank or other financial account, seize and sell your vehicle(s), real estate and other personal property.
What is a protected amount in garnishment? ›
For an account containing a protected amount, the financial institution may not charge or collect a garnishment fee against the protected amount. The financial institution may charge or collect a garnishment fee against additional funds deposited to the account up to five business days after the account review date.
Do unsecured creditors get paid? ›
First, unsecured creditors must be paid at least as much as they would have been paid if the debtor’s assets had been liquidated under Chapter 7. This is known as the best interests of creditors test. For debtors with little or no non-exempt assets, the best interests of creditors test will often equal zero.
How long can a wage garnishment last in Missouri? ›
A “bank garnishment” is a court order directing a garnishee (you) to seize all money held in a judgment debtor’s (defendant) bank account. The bank garnishment is good for 30, 60, 90 or 180 days, at the choice of the judgment creditor (plaintiff). The expiration date of the bank garnishment is called the “return date.”
Can your bank account be garnished in Missouri? ›
If you lose, the Judge will enter a judgment against you. Then your creditor may try to collect its judgment by “attaching” your property or “garnishing” your wages or bank account. However, both Missouri and federal law protect some of your property and income from creditors.
What is exempt from garnishment in Missouri? ›
If you are supporting a spouse, a dependent child under the age of twenty-one (21), or a dependent child who is deemed disabled by the Social Security Administration, you may be entitled to a head of family exemption from a garnishment.
How can I stop a wage garnishment immediately in Michigan? ›
You can use the Do-It-Yourself Objection to Garnishment tool if you have a reason to object to the garnishment. There is no cost to file an objection to a garnishment. You must file your objection with the court within 14 days of getting the notice of garnishment to stop the garnishment.
How long can you be garnished in Michigan? ›
It is valid for 91 days or until the judgment, interest and costs are paid off, whichever occurs first. As such, the garnishment will continue each pay period for the 91 days or until the debt is paid off.
How much is garnishment fee in Michigan? ›
Garnishment Fee
There is a $6.00 processing fee per Request and Writ for Garnishment. Please make the check or money order payable to the “State of Michigan” and remit payment at the time the Request and Writ for Garnishment is served on the State of Michigan.