Family support. Child and spousal
support is governed by Title IV-D of the federal Social
Security Act. The law is administered
by the states. Generally, states require a provision for immediate
income withholding by obligers' employers (although it may not be
activated). Income withholding covers current obligations and past
due support.
Administrative wage garnishment. The Debt Collection Improvement Act of 1996 (DCIA) (31 USC 3720D) authorizes federal agencies or collection agencies under contract
with them to garnish up to 15 percent of an employee's disposable
earnings to repay defaulted debts owed the federal government. Debts
must be for delinquent nontax arrearage to the federal government
and must be delinquent for 180 days or more. The federal agency must
notify the employee well in advance that the action is going to take
place and provide the person with the opportunity to dispute the debt.
The Higher Education Act (HEA) authorizes the
Department of Education's guaranty agencies to garnish up to 10 percent
of disposable earnings to repay defaulted federal student loans. This
withholding is also subject to the provisions of the federal wage
garnishment law but not state garnishment laws. Unless the total of
all garnishments exceeds 25 percent of disposable earnings, questions
regarding such garnishments should be referred to the agency initiating
the withholding action.
Consumer debt. Title III of the
federal Consumer Credit Protection Act (15 USCS 1671et seq.) governs most garnishments, other than child support or alimony
and tax levies. It limits the amount of an employee's earnings that
may be garnished and protects an employee from being fired if pay
is garnished for only one debt. Title III is administered by the Wage
and Hour Division (WHD) of the Department of Labor's (DOL) Employment Standards Administration.
The WHD has no other authority with regard to garnishments. Questions
over issues other than the amount being garnished or termination should
be referred to the court or agency initiating the withholding action.
A state law that allows a greater exemption to employees (money they
can retain) before garnishment supersedes the federal Act. On the
other hand, some state schemes are tied to gross income. In such states,
because the federal law is more restrictive (permits a smaller amount
to be garnished), the federal law would apply.
Important. The statute that is more
generous to the employee always prevails.
The law protects everyone receiving personal earnings
such as wages, salaries, commissions, bonuses, or other income--including
earnings from a pension or retirement program. Tips are generally
not considered earnings for the purposes of the wage garnishment law.
Consumer debts. Garnishment restrictions
do not apply to bankruptcy court orders and debts due for federal
or state taxes. For orders other than for federal taxes, family support,
and Chapter 13 bankruptcy, the maximum amount of wages available for
garnishment is the lesser of:
• 25 percent of disposable weekly earnings.
• The amount by which disposable weekly earnings exceed
30 times the federal minimum hourly wage in effect at the time the
earnings are payable. Some states use 40 percent of the federal minimum
wage--which would supersede the federal figure--so check your state
law.
When the garnishment is for child or spousal support,
a Chapter 13 bankruptcy, or for state or federal taxes, the 25 percent
limitation does not apply.
Family support orders. The maximum
amount of wages available for family support garnishment is:
• 50 percent of disposable earnings, when an individual
is already supporting another spouse or dependent child
• 60 percent of disposable earnings, when an individual
is not already supporting another spouse or dependent child
If the employee is more than 12 weeks behind in payments,
the percentages may increase to 55 percent and 65 percent, respectively.
Tax liens. The order itself should
state the amount owed by the employee, the kind of tax, and instructions
for calculating the amounts to be withheld. Certain moneys are exempt
from levy, including unemployment benefits, workers' compensation,
money that the worker must contribute to support for minor children
and certain disability benefits (26 IRC 6334).
Federal agency nontax debt. Any
federal agency that is owed any nontax debt may now administratively
garnish employee wages to recover the debt. State laws that prohibit
or otherwise govern garnishment are preempted. Employers will receive
an administrative order, and the regulations suggest that the amount
be sent within 10 days of payday.
The most that may be withheld is the lesserof:
• The amount shown on the garnishment order up to 15 percent
of the employee's pay; or
• The amount by which disposable pay exceeds 30 times the
federal minimum wage.
However, if an administrative order is not first in time
or if a child or family support order is served at any time, the maximum
amount changes to the following:
• The amount that could be withheld if there were no prior
order, and then
• The amount equaling 25 percent of disposable pay, less
the amount withheld under the prior order.
Example. Assume a state child
support withholding order and a consumer debt garnishment. The child
support order must be honored first. If it takes 50 percent of the
debtor's disposable earnings, the consumer garnishment may not be
honored because it is subject to a 25 percent limit, which has already
been passed. If, however, the child support takes only 15 percent
of disposable earnings, there will be 10 percent available for the
consumer debt (up to 25 percent). If the second order is a state or
federal tax levy, the order itself will state the amount that must
be withheld.
Handling several garnishments, support orders, and tax
levies is a complicated task. In most cases, employers should seek
the advice of an attorney, and/or have a specialist handle the calculations
and priorities.
Garnishments are to be made in the following order:
1. Child support or alimony orders. These orders have priority over other garnishments. The federal Child Support Enforcement Act requires each state to have
garnishment laws that ensure collection of child support orders issued
from all courts throughout the United States (42 USCS 666et seq.).
2. Federal tax levy. In most circumstances
a federal levy for nonpayment of federal taxes generally takes precedence
over all other debts except family support. Called a “levy of wages,”
it will come from the Internal Revenue Service to the employer and
should state the amount the employee owes, the kind of tax, instructions
on calculating the amount to be withheld, and the amounts that are
exempt (26 CFR
301.6631-1et seq.).
3. Guaranteed student loans. The HEA
allows the U.S. Department of Education to garnish up to 10 percent
of an employee's disposable income to repay a student loan. No judicial
order is needed. The HEA preempts state law regarding garnishment
and requires the employee receive 30 days' written notice before garnishment
action is taken. Employers that don't comply with guaranteed student
loan garnishments risk being sued for the owed amount. Student loans
are handled under the Administrative Wage Garnishment Act (20 USCS 1095et seq.).
4. Federal agency/nontax. The DCIA
allows the secretary
of the Treasury to collect any debt that has been delinquent for a
period of 180 days owed to the federal government. Debts may be collected
without court order. These include child support orders and student
loans.
5. Creditor garnishment. Title III
of the Consumer Credit Protection Act (15 USC 1671et seq.) does not address the issue of priority of garnishments, so state
law may govern this aspect. Generally, when an employer receives multiple
garnishment orders, the creditors are paid one at a time in the order
in which the documents are received. For example, if there is $25
per week available for garnishment, and the first garnishment is for
more than $25 per week, the first creditor receives payment, and the
second receives nothing until the first claim is fully satisfied.
Check the laws of your state. If a state law differs from Title III,
the law resulting in the smaller garnishment or otherwise protecting
the employee more should be observed. An order from a bankruptcy
court should be honored before other consumer debts because creditor
claims are consolidated.
6. First come, first served. Despite
these priorities, if an order is under way, continue it until its
conclusion, honoring the first order in full before turning to the
priority list.