Wage Garnishment Basics

Wage garnishments are regulated under the Consumer Credit Protection Act (CCPA). The CCPA limits how much of an employee’s wages may be garnished and provides other protections as well. Let’s take a look at these CCPA protections along with some guidance for employers that must carry out court-ordered garnishments on employee pay.

What Is a Wage Garnishment and Who Can Initiate It?

First, let’s take a step back and look at what constitutes a wage garnishment. It’s not a simple pay deduction, and it can’t be done at just anyone’s request. A wage garnishment is the legal way that some of an employee’s pay is deducted in order to repay a debt owed. Most of the time, this can occur only through one of these means:

• A court order;
• Through the IRS or other local or state tax collection agencies;
• Via other federal agencies for non-tax-related debts to the government, such as federal student loans; or
• An employee’s voluntary agreement to have the other employer pay a creditor on his or her behalf. (However, this last example would not technically be labeled a wage garnishment—it would be a voluntary wage assignment.)

How Much Can Be Garnished?

The amount that can be garnished from an employee’s wages depends on how much the employee earns and what type of garnishment it is.

Garnishments are subject to both prioritization (if there are multiple garnishments) and a maximum limit. The maximums are set as percentages of disposable income. Disposable income is defined as the income left over after legally required deductions have been made, such as tax withholdings, Social Security, and other withholding mandated by law. The maximum garnishment percentages are in place for individual garnishment types as well as for the aggregate total amounts garnished.

The type of garnishment with the highest priority is family support such as child support or alimony. This type of garnishment can go up to 60 percent of disposable income if there are no other children or spouse to support. If there are children or spouses to support (separate from the garnishment), then it is capped at 50 percent of disposable income instead. These figures are increased by 5 percent if the payments are more than 12 weeks behind.

The next priority for garnishment is back taxes owed. These are not subject to maximum garnishment levels. Instead, the IRS does its own calculations to determine what it assesses the individual can afford to pay, taking into account income, dependents, and the individual’s standard tax deduction amount.

Next come federal student loan debts or other non-tax debts owed to the government. General non-tax debt owed to the government can be garnished up to 15 percent of disposable earnings, and the DOL tells us that “The Higher Education Act authorizes the Department of Education’s guaranty agencies to garnish up to 10% of disposable earnings to repay defaulted federal student loans.”i In practice, this could mean that more than one organization could pursue these types of debts, depending on how the loan or other debt is structured.

Finally, if there is any money left over, ordinary garnishments to other creditors are capped at the lesser of:

• 25 percent of disposable income, or
• An amount that leaves the employee with no less than 30 times the federal minimum wage. That currently means that the garnishments cannot cause the weekly wages to fall below 30 x $7.25, which is $217.50.

These caps are aggregate, not separate. As such, if more than 25 percent of total disposable income is taken by a child support order, for example, no other garnishments will be able to be processed. Likewise, if 20 percent of disposable income is taken up by a child support order, then 5 percent could be left for the next garnishment, and so on. Both the priority and the cap must be taken into consideration.

One final note to bear in mind: Some state laws have stricter garnishment regulations than federal laws. In those cases, the state laws must be followed. Generally speaking, whichever law allows for the employee to take home more pay is the one that must be followed.

i For more information, see http://www.dol.gov/whd/regs/compliance/whdfs30.htm.
 

About Bridget Miller:

Bridget Miller is a business consultant with a specialized MBA in International Economics and Management, which provides a unique perspective on business challenges. She’s been working in the corporate world for over 15 years, with experience across multiple diverse departments including HR, sales, marketing, IT, commercial development, and training.