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Compliance with wage garnishment orders

Learn how to comply with wage garnishment orders using Online Payroll.

A garnishment is the result of a legal proceeding that requires an employer to withhold wages from an employee's pay and remit the money to an agency or creditor. We further define garnishment in the sections below, and explain how to ensure compliance.

What is a garnishment?

A garnishment is the result of a legal proceeding that requires an employer to withhold wages from an employee's pay and remit the money to an agency or creditor.

A garnishment order can be called an earnings withholding order, federal tax levy, support order, bankruptcy order, writ of garnishment, writ of attachment, or garnishment summons.

A garnishment is involuntary, so you as the employer have no choice but to withhold the money when you receive a legal garnishment order.

You might receive an order to garnish an employee's wages from a court, from the federal government, or from a state agency. Kinds of garnishments include federal tax levies, child or spousal support withholding orders, bankruptcy, state tax levies, creditor garnishments, federal student loans, state student loans, and federal agency debt (non-tax).

Federal and state laws govern garnishments to provide protection for the employee, and to prioritize the claims of multiple creditors. State law can allow a smaller amount to be garnished than federal law. The manner in which garnishments are calculated varies according to the type of garnishment and sometimes the state.

Garnishment orders might also allow you to impose an administrative fee on the employee.

Definitions

The following sections define terms related to garnishments.

Generally used to determine the amount of an employee's pay available for garnishment. They are the portion of an employee's earnings that remains after taxes and any exempt deductions (as defined by the garnishment).

For example, federal tax levies allow deductions required by law (taxes, Social Security, Medicare), required as a condition of employment (for example, union dues), or elected voluntarily by the employee before the federal tax levy order was received (for example, the employee's health insurance premium).

In reference to child and spouse support, disposable income is also called "aggregate disposable weekly earnings" (ADWE).

The definition varies by agency.

We follow federal guidelines that do not include reimbursements or tips that do not pass through the employer's hands. Federal guidelines consider that earnings include wages, salary, commission, bonus, the value of meals and lodging furnished by the employer, and paycheck tips (cash tips are not included).

The portion of an employee's earnings that is not subject to garnishment. This portion is defined by the garnishment order.

For example, a garnishment order might allow voluntary deductions already in place, such as a contribution to a 401(k) plan or health insurance premium. Exempt income reduces the disposable income subject to garnishment.

The order in which an employer takes multiple garnishments from an employee's pay.

The maximum amount that can be withheld from a paycheck or pay period. The total garnishment amount cap must include any administrative fee you add.

A voluntary contract between an individual and a creditor to allow the creditor to receive a portion of the individual s wages.

A wage assignment is not a garnishment for purposes of the Consumer Credit Protection Act, so the limits on garnishment do not apply, although state law can limit wage agreements.

In our payroll service, wage assignments can be set up like other voluntary deductions.

The garnishment order

The garnishment order explains what you are required to do, including the following:

  • When you must begin withholding wages (the effective date)
  • Where you must send the garnished wages, and how often
  • Any identifying code, such as a case identifier
  • How much notice you must give the employee
  • How you will know when you can stop withholding
  • How the current order must be prioritized in relation to other garnishment orders

When you receive a garnishment order, note the following, which you will need to enter in your Payroll service when you set up the garnishment. Use the fourth column in the following to record what your order says.

Federal Tax LevyChild/Spousal SupportOtherWrite here what applies to your employee:
Amount exempt from garnishment (determined from the employee's W-4 filing status and allowances claimed; see IRS Pub. 1494)Total dollar amount to garnish per pay periodTotal amount owed
Maximum percent of disposable earnings to garnishAmount requested per pay period
Alternate garnishment cap (rare)Alternate garnishment cap (rare)
Is medical insurance required?

Limits on garnishment amounts

Federal and state laws place limits on the amount of an employee's disposable income that can be garnisheed in a work week. State laws take precedence if they have stricter garnishment limitations.

The Federal Consumer Credit Protection Act limits garnishments to 25% of disposable income, or the amount by which the disposable income exceeds 30 times the federal minimum hourly wage, whichever is less.

A greater amount of an employee's wages can be garnished for child or spousal support, bankruptcy, and federal or state tax levies.

Up to 50% of an employee's disposable earnings may be garnished for child support if the employee is supporting a current spouse or child who is not the subject of the support order, and up to 60% if the employee is not supporting a current spouse or child. An additional 5% may be garnished for support payments over 12 weeks in arrears.

For more information about garnishment limits, see the U.S. Department of Labor Fact Sheet on the federal wage garnishment law.

When the garnishment ends

Federal tax levies and child and spousal support orders end only when you receive a legal notice to stop withholding (for a federal levy, the notice is Form 668-D). Other orders can have a maximum amount to withhold.

When you have specified a maximum amount to withhold and that amount is reached, we automatically make the garnishment inactive. The maximum amount will not be exceeded, and withholding for that garnishment is stopped.

When you receive legal notice to stop withholding for a federal tax levy or support order, go to the employee's garnishment page and clear the checkbox to indicate that the garnishment should be made inactive. When a garnishment is inactive, it appears on reports only if the report covers a period during which the garnishment was active.

Complicating factors: multiple garnishments or changes in employee deductions

When you receive more than one garnishment order for an employee, you must determine how to prioritize the orders.

After an order is in effect, some changes or additions to deductions might be exempt from garnishment.

For example, a deduction the employee cannot control, like a new deduction for union dues, is exempt from a federal tax levy.

If one of these situations applies to you, contact us for assistance.

Multiple garnishments per employee

Contact us for assistance in setting up multiple garnishments for the same employee. You should enter and activate garnishment orders in the Payroll service in the order you receive them.

Determine the priority of orders

When you receive a second or multiple garnishment order for an employee, you must specify which of the two active garnishments should take priority in the Payroll service, and how the available money should be remitted to each agency.

Federal Tax LevyChild/Spousal SupportOther
Only a bankruptcy order or an existing child or spousal support take precedence over a federal tax levy.Only a bankruptcy order or existing child or spousal support take precedence over a federal tax levy.Bankruptcy is first.
If there are multiple federal tax levies, the order with the oldest effective date should be first.Only a bankruptcy order or existing federal tax levy or possibly an existing child or spousal order take precedence over child or spousal support order.Nonbankruptcy: After any existing federal tax levy or child/spousal support.
If the current order does not take priority, notify the state child support enforcement agency.Other creditors: determine from the orders or call the state agency noted in the orders.

Wage garnishments and your Online Payroll service

Your Online Payroll service helps you comply with garnishment orders by calculating the amount that can be withheld to apply to the garnishment (based on existing taxes and deductions, and the type of garnishment).

We support the withholding calculations for up to two active garnishments per employee at a time. You must specify which of the two garnishments has priority and how the two garnishments should be paid when there is insufficient disposable income to satisfy both garnishments and the legal limits on withholding.

We currently do not support remittance of garnishments. To remit, follow the instructions on the garnishment order. This document explains garnishment fundamentals and compliance requirements.

For information on setting up a garnishment in your Payroll account, see Set up a garnishment.

Determine disposable income

We do the calculations for you. The system determines the amount of disposable income based on the following:

  • Type of garnishment
  • The employee's allowances for state and federal taxes and the filing status (often match W-4 allowances)
  • The employee's existing deductions, such as medical insurance in place at the time you initiate the garnishment
  • Any information you enter regarding adjustments to exempt deductions or allowances

Set the priority of multiple garnishments

You set priority only when an employee has more than one active garnishment at a time.

Garnishment orders can specify priority, but you may need to contact the garnishing agencies to determine priorities. In some cases, there will not be enough money to satisfy both orders completely.

  1. On the Edit Garnishment Weighting page, choose from the list.
  2. Click OK.
PriorityWhat it does/example
<garnishment> is first.The named garnishment is satisfied on each paycheck before any other garnishment.
Pay both garnishments equally.We calculate the maximum that can be withheld from the employee per paycheck, and apportion money equally to each garnishment.
Pay prorated amounts for each garnishment.We calculate the maximum that can be withheld from the employee per paycheck, and apportion money to each garnishment according to the ratio of the amounts of the garnishments. For example, if one garnishment is for $500 and the other is for $700, the ratio is 5 to 7.

Add the garnishment to your export to accounting software

If you have set up to export payroll data to accounting software (Microsoft Money, QuickBooks, or QuickBooks Online), go to Setup, select Export Preferences, and enter the name of the liability account to receive the garnishment information. Your accounting software must have a corresponding liability account.

Use the Deductions Report to remit to the garnishing agency

 

Go to Reports, and select Deductions and Contributions to find the amounts to remit to the garnishing agency.

We do not remind you when it is time to send the garnished wages to the agency. The timing of remittance is specified in the garnishment order. As the employer, you are legally required to remit on behalf of your employee on time.

You can find the amount to send on the Deductions report. Each garnishment is listed separately on the report with its description.

We recommend that you include the agency name as well as the employee's name in the description of a garnishment to help you remit the withheld wages.

Special situations

The following are some special situations related to garnishments.

Under federal guidelines, bonus income is generally subject to garnishment.

We include bonus income on regular paychecks as earnings that are subject to garnishment. However, Intuit Online Payroll does not apply garnishments to bonus-only checks created from the Bonus Checks page on the Payday tab.

If you create a bonus check as net pay, you receive the message Employee has deductions that can't be withheld from a bonus paid as net pay. To deduct the garnishment from the bonus check, go back and create the bonus check as gross pay.

If you're uncertain as to whether a bonus check should be garnished, contact the issuing agency for clarification.

If you know that a bonus check should be garnished, contact us for assistance in creating the check.

If you require employees to make payments through their paychecks (for example, for uniform fees), some orders allow such payments to be exempt from garnishment.

Contact us to update a setting on your account to enable you to enter the amount of the exempt payments.

We calculate the amount available to withhold for child or spousal support based on disposable earnings, and the amount for other types of garnishments based on gross earnings.

If your state requires child or spousal support (or other type of garnishment) to be based on gross earnings, contact us for assistance.

When an employee declares bankruptcy, a bankruptcy trust determines how creditors are paid. For this reason, the bankruptcy order takes first priority over every other garnishment.

Sometimes, an individual and a garnishing agency reach an agreement regarding payment to the agency. Often, the agreement specifies a specific amount to be withheld each pay period.

These cases, strictly speaking, are not garnishments but voluntary deductions. You can treat the amount as an after-tax deduction rather than as a garnishment.

For information about setting up a voluntary deduction of this kind, see Set up voluntary payroll deductions.

If a child or spousal support order lists different amounts for items such as current child support, past-due child support, or other orders, you must set up more than one garnishment.

For each garnishment, enter only the amount for that item in the Amount to garnish field.

Find more information about garnishments

For more information about setting up a garnishment, see Set up a garnishment

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