What is wage garnishment?

Wage garnishment is the process where a portion of an employee’s earnings is withheld to pay off a debt they owe. Wage garnishment is often carried out by the court or a government agency when an individual fails to respond in a timely manner to other payment requests.

Definition and Example of Wage Garnishment

Wage garnishment is a legal or equitable procedure in which a portion of a person’s earnings is withheld and paid to the party to whom they owe. In many instances, the garnishment is ordered by the court. However, it can also be enforced by the federal tax agency, state tax collection agencies, or other federal government entities.

For example, suppose Michael is obligated to pay child support to Maria but has not fully paid the amount due. Maria can go to court and obtain a court order to garnish Michael’s wages. In turn, Michael will receive a reduced paycheck while Maria will receive the garnished portion. The garnishment will continue until the debt is fully repaid.

How Wage Garnishment Works

Wage garnishment serves as a means to ensure debt repayment. It is often one of the last steps taken to compel an individual to pay if they have not responded to other payment requests.

The Wage Garnishment Process

The wage garnishment process begins when there is an outstanding debt, and the individual is not repaying it as agreed. The unpaid debt can arise from various sources, such as a medical bill, a car loan, a civil judgment, a child support order, a student loan, a state tax bill, or a federal tax bill.

Note: Non-governmental entities will need to obtain a court order to garnish wages, whereas government agencies can garnish wages without court assistance.

Once wage garnishment begins, the employer will be notified and will be required to withhold a specific amount from the employee’s earnings until the debt is fully paid off. Earnings may include wages, commissions, bonuses, salaries, retroactive pay increases, and large sums. If you do not want your wages garnished, you can take steps such as speaking to your creditor or contesting the garnishment process.

CCPA Restrictions on Wage Garnishment

Section three of the Consumer Credit Protection Act (CCPA) limits the percentage of net earnings that can be garnished from a person’s wages in a week.

Note: Net earnings are the amount remaining after deductions for taxes, health care, Social Security, and unemployment insurance tax.

In most cases, up to 25% of your net earnings can be garnished. However, your wages cannot be garnished if your net earnings equal 30 times or less the federal minimum wage. For example, the federal minimum wage is $7.25, so if you worked 30 hours per week and earned $217.50, no amount would be garnished.

The 25% cap applies once you reach 40 times the federal minimum wage. If you earn between 30 and 40 times the federal minimum wage, garnishment can occur on the wages that exceed the minimum 30 times.

For example: suppose Nina owes $2000 for a medical bill and her wages are garnished by court order. She earns $500 in net income each week, so 25% ($125) is deducted from each paycheck. After 16 weeks, she will have paid off her debt completely, and the garnishment will be lifted.

If Nina is earning only $250 per week, her wages will be above 30 times the federal minimum wage ($217.50) but below 40 times the federal minimum wage ($290). Therefore, the excess amount over $217.50 will be deducted in each pay period, which will be $32.50 per week. She will pay off her debt in 62 weeks.

Note:

If you are obligated to pay child support or alimony, up to 50-60% of your wages can be garnished, in addition to 5% for payments that are more than 12 weeks overdue. Furthermore, the restrictions do not apply to court orders related to bankruptcy or federal and state tax debts.

Federal agencies that collect non-tax debts can order the employer to pay up to 15% of an individual’s earnings without a court order. Additionally, federal law prohibits employers from firing employees due to wage garnishment.

Key Takeaways

Wage garnishment involves the involuntary withholding of wages to satisfy a debt. In most cases, up to 25% of an individual’s earnings may be garnished each week. The restrictions do not apply to federal or state tax debts or certain court orders related to bankruptcy. Wages cannot be garnished if you earn the federal minimum wage multiplied by 30 or less. Wage garnishments for child support or alimony orders can reach up to 65% of earnings.

Source: https://www.thebalancemoney.com/what-is-wage-garnishment-5220613