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1©API Fund for
Payroll Education, Inc.
Garnishments
Topics
1. Involuntary Deductions
2. Tax Levies
3. Creditor Garnishments
4. Federal Garnishments
2
3
Involuntary Withholding
Section 1 3
Involuntary Deductions● Neither employer nor employee has control
● Must deduct and remit to satisfy debt
● Failure to deduct results in penalties, fines,and interest
4
Employer Responsibilities
1. Contact the agency or court to makesure the claim and amount are valid
5
Employer Responsibilities2. Tell the employee about the order
3. Tell how to apply for exemptions, if any
4. Tell how the order will affect net pay
6
Employer Responsibilities
5. Determine themaximum amountallowed by law
6. Determine priority, ifmore than one order
7. Contact legal counsel
7
Priorities
Multiple involuntary deduction orders
8
Which ordershould be
taken first?
Priorities
9
Involuntary Deductions
Bankruptcy
Child Support
Creditor
Federal Administrative
Federal Tax Levy
Local Tax Levy
State Tax Levy
Student Loan
Key Child Support Elements
● Priority
● Interstate orders
● New-hire reporting
● Electronic payments
● Centralized payments
● Standardized withholding form
● Multiple orders processed simultaneously
10
11
Tax Levies
Section 2 11
Tax Levies
● Employee fails to pay taxes
● Employer must determine:
1. Amount subject to the levy
2. If there are other claimstaking priority
12
State Tax Levy Rules
● Some states follow the CCPA limits,some set specific limits, others have norestrictions
● States without an income tax can issuea state tax levy
13
State Tax Levy RulesState ProvisionsAL The Department of Revenue, Collection Services Division, has
the authority to issue executions and writs of garnishments forunpaid state taxes.
Limits. Up to 25% of total wages or salary may be withheld.
Levy remains in effect until liability is satisfied.
AK Alaska does not have a state income tax; however, anattachment may be issued for the collection of a state tax orlicense fee.
AZ The Department of Revenue may collect unpaid state taxes bylevy. The levy is continuous from the date it is first made untilthe liability is satisfied or becomes unenforceable.
Limits. The same amount is exempt from a state tax levy as isexempt from a federal tax levy.
14
Federal Tax Levy Rules
● Form 668-W, Notice of Levy on Wages,Salary, and Other Income
◦ Part 1 is employer’s copy
◦ Parts 2 – 5 for the employee (returns 3 & 4)
◦ Part 6 is kept by the IRS
15
Employer has duty tohonor the IRS levy, notdetermine its validity
16
Federal Tax Levy Rules
Part 1
17
Part 1
18
Federal Tax Levies● Form 668-W, Notice of Levy on Wages,
Salary, and Other Income
◦ Part 3
◦ Employee completes
◦ Provides to employer
◦ Employer returns to the IRSwith the first payment
19
Part 3
20
Part 3
21
Priority vs. Other Orders
● Satisfied before all other garnishments
◦ Except a child support predating the levy
◦ Except for attachments in effect prior to thetax levy
22
Disposable Earnings
● An existing tax levy orfederal garnishment
◦ Has priority over a newchild support
◦ Must be considered inthe CCPA maximum
23 24
Example 1: Sam
• Current federal tax levy = $480• Disposable earnings = $1,150• Child support max = $690
(60% of $1,150)• Child Support payment = $210
($690 - $480)
Wage Exemption● Standard deduction and personal
exemptions
◦ For year the levy is received
◦ Provided by employee on 668-W, Part 4
◦ If Part 4 not returned, married filingseparately, 1 exemption
◦ Exempt amount on Publication 1494
25
● Other payments exempt from the levy
◦ Unemployment benefits
◦ Workers’ compensation
● IRS can still attach a 15% levy
26
Wage Exemption
2018Publication
1494
27
IRS Publication 1494
● Levies spanning more than one year
◦ Continue to use the originalPublication 1494
◦ Unless the employeesubmits a new Part 3of Form 668-W
28
Exempt Amount fromTake-Home Pay
● Subtract from gross pay
◦ Federal, state, and local taxes
◦ All involuntary, voluntary deductions in effect
◦ Increases in preexisting deductions beyondthe employee’s control
◦ Deductions from a condition of employment
29
Example 2: Jenna
● Gross pay = $1,250 per week
● Tax status = Single, 1 exemption
30
● Deductions:
◦ FIT = $200.00
◦ SIT = $64.37
◦ SS = $77.50
◦ MT = $18.13
◦ §401(k) = $20.00
◦ Total = $380.00
31
Example 2: Jenna● How much is subject to the levy?
◦ $1,250.00 - $380.00 = $870.00 (take-home)
◦ $870.00 - $204.81 (Pub 1494) = $665.19
◦ $665.19 = Subject to levy
32
Example 2: Jenna
Example 3: Mikaela
● Gross pay = $2,000 semimonthly
● Tax status = Married filing jointly,4 exemptions
33
● Deductions:
◦ FIT = $107.00
◦ SIT = $70.30
◦ SS = $111.60
◦ MT = $26.10
◦ §401(k) = $60.00
◦ Health insurance = $200.00
◦ Total = $575.00
34
Example 3: Mikaela
● How much is subject to the levy?
◦ $2,000.00 - $575.00 = $1,425.00 (take-home)
◦ $1,425.00 - $1,233.33 (Pub 1494) = $191.67
◦ $191.67 = Subject to levy
35
Example 3: Mikaela
Taxpayer's standard deduction
+
Value of exemptions on tax return÷Number of pay periods
Exempt amount
Levy Exemption Calculation
36
2017
$6,350
+
$4,050÷52
$200.00
Levy Exemption Calculation
37
2018
$6,500
+
$4,150÷52
$204.81
$12,000
+
$0÷52
$230.76
Revised 2018 Levy Exemption?
38
Direct Deposit/Payroll Card
● Method of payment is irrelevant
● Not considered a payroll deduction
● Considered a method of payment
39
New Voluntary Deductions
● New voluntary deductions come fromexempt amount
40
Administrative Fee
● May employers charge anadministrative fee?
◦ Nothing under federal lawprohibits this, but the feecannot come from theamount due to the IRS
41
Making Payments
● Remit amounts on payday
◦ Send to the address on 668-W, Part 1
◦ Send Part 3 with first payment
◦ Can send a single payment covering multipleemployees
42
Making Payments● IRPAC has recommended electronic
payments
● IRS is studying the idea
43
When to Stop Withholding
Form 668-D, Release of Levy/Releaseof Property from Levy
44
2-30
45 48
When Employment Ends
Complete the back of Part 3and send to the IRS
47
Employer Liability
● Employer is notliable to employeefor amountswithheld
48
Employer Penalties
● Full amount of levy,plus interest
● Penalty = 50% of theamount recoverable
49
VoluntaryDeduction Agreement
● Form 2159, Payroll Deduction Agreement
◦ May prevent levy
◦ Voluntary agreement – between IRS, employee,and employer
50
51
Creditor Garnishments andOther Deductions From Pay
Section 3 51
Creditor Garnishments
● A wage garnishment isa legal means for aperson who is owedmoney to obtainpayment
52
Creditor Garnishments
● Consumer Credit Protection Act(Title III)
53
Creditor Garnishments
● Maximum deduction – lesser of
◦ 25% of disposable earnings, or
◦ The amount over 30 times federal minimumwage
54
Gross earnings
Deductionsrequired by law
Disposable Earnings
55
Disposable Earnings
● Existing wage attachments
◦ Not considered required by law
◦ Not subtracted from gross
56
Disposable Earnings
● Tips as earnings under theCCPA
◦ Cash and credit card tips arenot disposable earnings
◦ Mandatory service fees areincluded as disposable earnings
57
Garnishment Limitseffective July 24, 2009
Weekly BiweeklyDisposable earnings are Disposable earnings are$217.50 or less: NONE $435.00 or less: NONE
Disposable earnings are Disposable earnings aremore than $217.50 but more than $435.00 butless than $290.00: less than $580.00:AMOUNT ABOVE $217.50 AMOUNT ABOVE $435.00
Disposable earnings are Disposable earnings are$290.00 or more: $580.00 or more:MAXIMUM 25% MAXIMUM 25%
3-2
58
59
Example 1: Aaron
• Disposable earnings =$750.00
• Garnishment order =$900.00
60
• Maximum to withhold,lesser of◦ $750.00 X 25% = $187.50◦ $750.00 - $217.50 = $532.50
• Withhold = $187.50
Example 1: Aaron
616161
Effect of State/LocalMinimum Wage IncreasesAK
HI
OH
WA
CAVA
MI
GA
KS
IA PA
WVDE
MS
ORSD
MO
WI
MN
KY
SC
FL
NC
UT
AZ
ND
NM OK
TN
NE
WY
LA
IL IN
AR
VT
NY
CO
AL
MT
ID
NV
TX
MD
ME
NJ
DC
MARI
CT
NH
Uses federalminimum wage
Uses federal & stateminimum wage
Other or N/A
Creditor Garnishments
62
ST Disposableearnings
Garnishmentlimits
GarnishmentPeriod
AdministrativeFee
AL That part ofthe earningsof a debtorremainingafterdeduction ofamountsrequired bylaw to bewithheld…
CCPA limits. Continuous –in effect untilpaid orreleased.
No provision.
63
Creditor GarnishmentsGarnishment LimitsAK
HI
OH
WA
CAVA
MI
GA
KS
IA PA
WVDE
MS
ORSD
MO
WI
MN
KY
SC
FL
NC
UT
AZ
ND
NMOK
TN
NE
WY
LA
IL IN
AR
VT
NY
CO
AL
MT
ID
NV
TX
MD
ME
NJ
DC
MARI
CT
NH
Federal with exceptionsFollows federal Other Not allowed
AK
HI
OH
WA
CAVA
MI
GA
KS
IA PA
WVDE
MS
ORSD
MO
WI
MN
KY
SC
FL
NC
UT
AZ
ND
NM OK
TN
NE
WY
LA
IL IN
AR
VT
NY
CO
AL
MT
ID
NV
TX
MD
ME
NJ
DC
MARI
CT
NH
Continuous Other64
Creditor GarnishmentsGarnishment Period
N/A
65
Creditor GarnishmentsAdministrative FeeAK
HI
OH
WA
CAVA
MI
GA
KS
IA PA
WVDE
MS
ORSD
MO
WI
MN
KY
SC
FL
NC
UT
AZ
ND
NM OK
TN
NE
WY
LA
IL IN
AR
VT
NY
CO
AL
MT
ID
NV
TX
MD
ME
NJ
DC
MARI
CT
NH
> $1—$5 per pay$1 per pay Other No provision
Creditor Garnishments
● Limit applies tomultiple garnishments
● Exceptions – othertypes of garnishments
66
67
Example 2: Jesse
• Disposable earnings = $1,600• Child support order = $480• Creditor garnishment = $750• Withholding for creditor garnishment = $0
68
Example 3: Jesse
• Disposable earnings =$1,600
• Child support order = $240• The creditor garnishment
= $750• Withholding for creditor
garnishment = $160
No DischargeEmployers are prohibited from
terminating employees because their“earnings have been subjected to
garnishment for any oneindebtedness”
69
Penalties
If an employer failsto withhold
70
Federal, State, and LocalEmployees
● Exempt from garnishment unlessspecifically provided otherwise by statelaw
71
State Regulation
● Priority
● Maximum limits
● Remittance timing
● Administrative fees
● Procedures forout-of-state orders
● Penalties
72
73
Uniform WageGarnishment Act
• Uniform Law Commission approves finalversion of the UWGA
• Act streamlines garnishment process• In 2017, CO and NE introduced UWGA
legislation to their state legislatures
• UWGA provisions
• Employer admin fees
• Forms
• Withholding limits
• Out of state orders
74
Uniform WageGarnishment Act
Garnishment of Wages inBank Accounts
75
Chapter XIII bankruptcy orders takepriority over any other claim
Employers must stop withholdinggarnishments … except child support!
Bankruptcy Orders
76
● General rules
◦ Deductions are handled by a bankruptcytrustee to satisfy employee’s creditors
● No termination of employee forbankruptcy
● Retirement plan loans
◦ Not discharged by bankruptcy
77
Bankruptcy Orders
78
Federal InvoluntaryDeductions
Section 4 78
Student Loan Collections
● Maximum amount –lesser of
◦ 15% of disposableearnings, or
◦ The amount over 30times federal minimumwage
● Disposable pay
79
AWG Disposable Income
80
Student Loan Collections
● Protection from discharge
● Notice before garnishment
◦ 30 days’ notice before withholding begins
● No guidance on priorities
◦ Dept. of Education allows child support tohave deduction priority
81
Student Loan Collections
● Grace period after reemployment
◦ 12-month grace period
● Penalties for noncompliance
● Employer’s responsibilities
82
Calculating a Student LoanGarnishment
● Maximum deduction islesser of
◦ 15% of disposableearnings
or
◦ Disposable earningsover 30 times thefederal minimum wage
83
Student Loan Garnishment Limitseffective July 24, 2009
Weekly BiweeklyDisposable earnings are Disposable earnings are$217.50 or less: NONE $435.00 or less: NONE
Disposable earnings are Disposable earnings aremore than $217.50 but more than $435.00 butless than $290.00: less than $580.00:AMOUNT ABOVE $217.50 AMOUNT ABOVE $435.00
Disposable earnings are Disposable earnings are$290.00 or more: $580.00 or more:MAXIMUM 15% MAXIMUM 15%
3-2
84
Federal Agency DebtCollections
● Debt Collection Improvement Act of 1996(DCIA)
◦ Form SF-329B, United States GarnishmentWage Order
● Bureau of the Fiscal Service
◦ BFS collects federal nontax debts
85
● Maximum amount –lesser of
◦ 15% of disposableearnings, or
◦ The amount over 30times the federalminimum wage
● Disposable pay
● Tips as earnings
86
Federal Agency DebtCollections
● Remaining criteria similar to student loangarnishments
◦ Implementing the order
◦ Protection from discharge
◦ Notice before garnishment
87
Federal Agency DebtCollections
● Priority of multiple withholding orders
◦ First priority unless another order precedesor a child support order is issued
● Maximum to withhold
◦ Lesser of 15% of disposable pay or excessof 30 times the federal minimum wage
● Grace period after reemployment
88
Federal Agency DebtCollections
● Termination of an AWG
◦ Form SF-329E, United States Government Noticeof Termination of Wage Garnishment Order
89
Federal Agency DebtCollections
SS AdministrativeWage Garnishment
● Social Security Administrative wagegarnishments
◦ Program overpayment debts
● Priority
◦ Child support orders take priority
90
GSA AdministrativeWage Garnishment
● General Services Administration wagegarnishments
◦ Under DCIA, collects non-tax debt owed tothe U.S.
91
Chapter XIII bankruptcy orders takepriority over any other claim
Employers must stop withholdinggarnishments … except child support!
Bankruptcy Orders
92
Child Support & Bankruptcy
● Child support debts are not dischargeableunder a bankruptcy – don’t stopwithholding
93
● General rules
◦ Deductions are handled by a bankruptcytrustee to satisfy employee’s creditors
● No termination of employee forbankruptcy
● Retirement plan loans
◦ Not discharged by bankruptcy
94
Bankruptcy Orders
95©API Fund for
Payroll Education, Inc.
Thank you for attending
Garnishments
