Here at Dominion we have a small group of payroll and HR experts who make up what we call our Dominion University team. The four of them get together and, in addition to their primary job duties, research the hottest topics in the HR world and teach classes to the rest of us so we’re always up to date on what’s going on. Last week our Product Strategist, Claire Manz, gave a presentation on employee garnishments, which ranged from tax levies to Friend of the Court payments. While this isn’t exactly a hot topic, she felt it was pertinent to teach because so many people don’t understand what they actually mean. I figured if we could muster up enough interest here in the office, I’m sure I could do the same in the digital HR world.
So what exactly is a garnishment? Essentially, it’s an order by an authorized court or other authority that requires an employer to withhold money from an employee’s paycheck in order to forward to a designated payee. Some types of garnishments include tax levies, child support orders, creditor garnishments, bankruptcy, student loan collection, and wage assignments.
If an employee fails to pay their federal or state taxes, they may become subject to a tax levy. Levies are one of the harshest collection methods used by the IRS and state taxing authorities, so this will only occur after all other collection efforts have been exhausted. Keep in mind that garnishing wages is only one way in which the IRS might enforce a levy. They also have the ability to take money straight out of your bank or financial account or even seize and sell your vehicle, real estate and other personal property.
So how exactly do we calculate tax levy garnishments? Basically you find your ‘take home’ pay, which is the gross wages minus taxes and deductions in effect, and subtract the exempt amount. You’ll then send the remaining amount to the government. It’s important to note that you must begin withholding immediately after receipt of the levy. Tax levies are satisfied before all other garnishments and attachment orders, with the exception of child support withholding orders that were in effect before the levy.
Child Support Orders
Depending on the state you live in, a child support order may require a parent’s wages be withheld in order to make support payments on behalf of the child. There are also medical child support orders for children who are owed support that requires the employer to enroll children and withhold medical insurance premiums. The maximum amount to withhold is 50% of the employee’s ‘disposable earnings’ if they are supporting another spouse or child(ren) and 60% if they are not supporting another spouse or child(ren). The amounts increase to 55% and 65%, respectively, if the employee is at least 12 weeks in arrears in payments. Disposable earnings are determined by subtracting tax withholdings and mandated state retirement payments from your gross income. Child Support Orders take priority over all other garnishments and attachment orders, with the exception of tax levies that were received earlier.
A creditor garnishment is a court ordered collection for an employee’s debt that remains unpaid. The maximum amount of an employee’s ‘disposable earnings’ that can be garnished is the lesser of the following two conditions:
- 25% of the employee’s disposable earnings for the week; or
- The amount by which the employee’s disposable earnings for the week exceeds 30 times the federal minimum hourly wage in effect at that time (currently $217.50 in Michigan).
The garnishments listed above are the most common types you’ll find on your employees paychecks, but they are not the only. Here is a list of other garnishments that you might come across:
- Bankruptcy – Requires wages to be paid to a trustee and must stop all other withholdings with the exception of child support.
- Student Loan Collection - Garnishment of an employee’s wages that is used to repay delinquent loans. The amount garnished is the lesser of the following two conditions: 15% of weekly disposable earnings; or the amount by which disposable earnings exceed 30 times the federal hourly minimum wage. This amount increases to 25% if there are multiple loans. Child support orders have only priority.
- Federal Agency Debt Collection – This garnishment is used to collect other non-tax debts. The amount garnished is up to 15% of the employee’s disposable earnings for the week or the amount by which the employee’s disposable earnings for the week exceeds 30 times the federal minimum hourly wage effect at that time.
It is your responsibility as the employer to contact the agency or court to validate the order. It’s also a good idea to make sure the employee is aware of the garnishment before it is taken out of his or her paycheck. Also, you will need to make sure you understand any state and federal exemptions that might be relevant, as well as the effect on the employee’s take home pay. This means determining the effect and priority each garnishment has on other orders and may require you to have legal counsel review.
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