An Employer’s Guide: How to Garnish Wages

Posted by Dana Spinello, CPA on Jun 6, 2017 9:00:00 AM
Dana Spinello, CPA

Money gavel.jpgA wage garnishment is an involuntary court order that requires an employer to withhold a portion of an employee’s wages to pay part of that employee’s outstanding debt. The issuing agency will notify employers about the need to garnish an employee’s wages by issuing a writ of garnishment; and employers must legally comply. Many employers aren’t sure how to garnish wages, so they ignore the order and/or miss a response deadline.That decision could land you in court - or worse, leave you on the hook for the employee’s debt.

The writ of garnishment will include a response form and calculation worksheet. It’s vital employers calculate and apply wage garnishments correctly. In most states, withholding must begin within the pay period specified by the writ’s date of service. Employers must continue withholding until they receive an order to stop or they could be the ones paying a penalty.

It’s considered a best practice for employers to send a copy of a writ of garnishment to the employee. As awkward as these situations can sometimes be, you shouldn’t be the deliverer of any shocking news. Your employee is probably well aware of the debts he or she has looming. Depending on which state you operate in, employees have a set amount of time to dispute the debt. If you receive a garnishment order by mistake (i.e. the employee no longer works for you), make sure to contact the issuing agency.

Garnishments commonly come from creditors like banks and credit card companies. Child support enforcement agencies also issue garnishment orders to collect past-due child support payments. Some common examples of things you might need to garnish an employee’s wages for include:

  • Child Support

  • Student loans

  • Taxes

  • Unpaid court costs

  • Credit card bills

  • Medical bills

  • Any other debts on which a person has defaulted

Federal and state regulations determine how much an employer should withhold from an employee for a garnishment or tax levy each pay period. It’s the employer’s responsibility to know the maximum amount that can be garnished, which varies by state. On a federal level, the Consumer Credit Protection Act protects the employee’s wages. The CCPA says the garnishment can be up to either 25 percent of the employee’s earnings, or 30 times the current federal minimum wage, whichever is less. However, certain types of debt, like bankruptcy or child support, have higher withholding limits.

Sometimes, employees may have more than one garnishment order. The employer must issue payments on federal debts first, then state or local tax debts, and then creditors. If there are multiple creditors, employers pay the earliest garnishment first. Here’s an example of the priority:

  1. Child Support

  2. Federal debt

  3. State or local tax debt

  4. Earliest credit card or other debt garnishment

  5. All other debts

The CCPA prohibits employers from terminating or disciplining an employee for their first wage garnishment, regardless of the number of levies made or proceedings brought to collect that one debt. However, the CCPA does not prohibit termination if an employer must separately garnish an employee's earnings for two or more debts.

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Topics: Payroll, Human Resources, garnishments

Dana Spinello, CPA

Written by Dana Spinello, CPA

Dana is the Senior Tax Manager at FrankCrum. Dana has been with FrankCrum since 2010 and oversees tax compliance, payroll tax administration and employment benefit tax planning. She has been a Certified Public Accountant since 2002. When she’s not working, Dana enjoys traveling and reading historical novels.

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