A wage garnishment is an order from a judicial or governmental agency requiring an employer to withhold a certain sum from the wages of an employee for payment of a debt. Such an order may come from the Internal Revenue Service (IRS), a federal or state agency or court, or from an individual creditor. An employer's response to a garnishment demand will depend upon its nature, and in what order the employer receives it. The law applies in all 50 states, Puerto Rico, the District of Columbia, and all U.S. territories and possessions.

Wage garnishments do not include voluntary wage assignments--situations in which employees voluntarily agree that their employers may turn over a specified amount of their earnings to a creditor or creditors. Also, wage garnishments do not apply to certain bankruptcy court orders or to debts due for federal or state taxes.

Wage garnishment is very complex. Federal law is not straightforward, and state laws also interact with garnishment obligations. An employer that receives a wage garnishment order may want to consult a legal advisor before deciding how much to withhold and, in the case of multiple garnishments, where priorities lie.

Never ignore a garnishment order. Failure to answer and comply may result in a contempt of court judgment, and in some cases the employer may wind up with liability for the amount owed. In the case of a consumer order, if an employer is unable to honor it because of its priority or the exemption amount, the employer must communicate with the court or agency and explain the circumstances.

Employers should take care not to be misled by official-looking documents mailed by collection agencies requesting deductions from an employee's paycheck.

Processing fee. Employers may withhold a processing fee from the employee's wages, which is generally set by the orders themselves, or by state law.

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:

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:

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:

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:

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:

Bankruptcy stops garnishment temporarily, except for child support cases. The Bankruptcy Code prohibits garnishment and tax levies once the employee has filed for bankruptcy. The prohibition (or “automatic stay”) lasts until the bankruptcy action has been settled (or “discharged”). At that time, consumer debts may be erased, but employers must resume garnishment for tax levies and, usually, student loans. Court-ordered family support is generally not subject to an automatic stay; therefore, wage garnishment for support should continue even when an employee files for bankruptcy.

Bankruptcy reform. The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 requires certain debtors who have the ability to pay back their debts to enter a payment plan under Chapter 13 bankruptcy, which requires repayment of most or all debt within 3 to 5 years, rather than having their debts canceled under Chapter 7. The law has impacted employers by increasing the number of employees subject to wage garnishments, leaving Human Resources professionals with the task of confronting greater numbers of distraught and angry employees about debt repayment.

Wage garnishments are a great deal of work for employers, and it may be tempting to eliminate the burden by getting rid of the employee. But under federal law, an employer may not discharge an employee because of wage garnishment “for any one indebtedness.” Violation is punishable by a fine and imprisonment. Federal law does not prohibit discharging an employee for several garnishments for several debts. However, it is illegal in some states, so check carefully before you take any action. Also, a garnishment disciplinary policy may be restricted by Title VII of the Civil Rights Act of 1964 if it has a disproportionate effect on protected groups of employees.

According to the DOL Field Operations Handbook, the term “one indebtedness” refers to a single debt, regardless of the number of levies made or the number of separate garnishment proceedings instituted in connection with the indebtedness. This debt may represent one or more claims of a single creditor or the claims of several creditors who joined in the proceeding.

The distinction between a single debt and the garnishment proceeding(s) brought to collect it has particular importance in states that allow garnishment only of wages earned prior to the garnishment order being served or that allow garnishment of future wages subject to a time limitation. In such states, the judgment creditor may need to secure a number of garnishment orders to collect the full amount of the single debt represented by a judgment. Federal law prohibits discharge of an employee under such circumstances.

An employee discharged after a second garnishment that occurred long after the first may have been discharged solely because of the second garnishment. As a rule of thumb, where the interval between successive garnishments for separate debts exceeds 1 year, the DOL will carefully scrutinize a discharge from employment following the latest garnishment. A determination of whether a violation exists must be based on all the facts and circumstances of each situation.

Firing an employee for any family support withholding is illegal.

When an employer gets a collection request from an outside agency, it should:

An employer will probably receive a form for its response to a garnishment order. If not, answers generally require the following information:

Most garnishment packages provide worksheets with instructions for computing the wage garnishment amount.

Disposable earnings. Under federal law, the maximum amount of a garnishment depends on the employee's disposable earnings; that is, the person's net income after legally required deductions have been made: federal, state, or local taxes, Social Security, and Medicare. Such things as union dues, voluntary health insurance, or charitable contributions are not subtracted from gross earnings when calculating disposable earnings.

Example 1: An employee's gross earnings in a particular week are $263. After deductions required by law, the disposable earnings are $233. In this week, $15.50 may be garnished, since only the amount over $217.50 may be garnished where the disposable earnings are $290 or less. The employee would be paid $217.50.

Example 2: An employee's gross earnings in a particular workweek are $402. After deductions required by law, the disposable earnings are $368. In this week, 25 percent of the disposable earnings may be garnished ($368 × 25 percent = $92). The employee would be paid $276.

Example 3: A garnishment order is received after the second workday of the week. It requires a garnishment be withheld based on wages earned up to that day. The employee is paid $60 a day. Since less than $217.50 has been earned, no garnishment is permitted. However, if another garnishment is received when the workweek is complete, or in states where continuing garnishments are issued, the employer may withhold on the basis of the earnings for the entire week.

Example 4: An employee paid every other week has disposable earnings of $500 for the first week and $80 for the second week of the pay period, for a total of $580. In a biweekly pay period, when disposable earnings are at or above $580 for the pay period, 25 percent may be garnished; $145 (25 percent × $580) is subject to garnishment. It does not matter that the disposable earnings in the second week are less than $217.50.

Example 5: An employee on a $400 weekly draw against commissions has disposable earnings each week of $300. Commissions, paid monthly, total $3,000 for July after deductions required by law. Each draw and the balance due at the monthly settlement are separately subject to the law's restrictions. Thus, 25 percent of each draw ($75 in this example) may be garnished. At the end of the month, the $1,200 previously drawn is subtracted from the $3,000 settlement figure, and 25 percent of the balance may be garnished. In this example, the garnishable amount is $450 ($3,000 − $1,200 × 25 percent).

Example 6: Pursuant to a garnishment order (with priority) for child support, an employer withholds $90 a week from the wages of an employee who has disposable earnings of $295 a week. A garnishment order for the collection of a defaulted student loan is also served. The limit for normal garnishments of 25 percent applies to the debt for the outstanding student loan. Under the formula for normal garnishments, a maximum of $73.75 (25 percent × $295) is garnishable. The $90 support payments may be withheld, because the normal restrictions do not apply to court orders for support. No withholding for the defaulted student loan may be made, because the amount already withheld is more than the amount that may be withheld for normal garnishments. Additional withholdings could be made to collect support, delinquent federal or state taxes, and certain bankruptcy court ordered payments.