Government agencies and court orders can require employers to garnish an employee’s wages to collect unpaid debts or financial responsibility.
Government agencies and court orders can require employers to garnish an employee’s wages to collect unpaid debts or financial responsibility. Federal and state tax agencies will impose a levy on an employee’s wages for outstanding tax balances. There are five types of wage garnishments that employers can receive.
Federal Wage Garnishments
Wage garnishments are ranked in order of importance. Federal debts must be paid first, except if there is a Child Support garnishment in place. State wage garnishments are issued after all federal debt is repaid.
Child support is the first priority for wage garnishments. As a federal tax obligation, employment income must first satisfy child support requirements. The law orders automatic wage withholding for family support orders, spousal support, and alimony.
Employers must notify the employee once a wage garnishment is issued. They must also state the amount that will be withheld from each paycheck.
Federal Student Loans
If an individual defaults on a federal student loan, the government has the right to garnish up to 15 percent of the student’s wages. Since the U.S. Department of Education issues federal student loans, they are treated as other federal debts. The borrower will be notified 30 days prior to garnishments. Federal student loans are next in importance after child support.
State Wage Garnishments
After all federal debt is settled, state tax agencies are eligible to collect any unpaid debt.
State Income Taxes
If you fail to file a tax return or incorrectly report income, you may be subject to wage garnishments. Citizens who do not pay owed state taxes can face garnishments up to 15 percent of wages until the debt is repaid– varies by employee’s work state.
Credit Cards and all Other Debt
Once federal and state tax levies are taken care of, private organizations have the right to garnish a borrower’s wages. This typically comes in the form of credit card and other debt.
Other liabilities may include medical bills, personal loans, or other unpaid consumer obligations.
When it comes to consumer debt, the order in which it is retrieved is based on the date the debt was acquired. The earliest debt must be paid first. Garnishments continue in order of the time received. The amount that can be garnished from the employee’s wages varies by the employee work state.
Contact your legal advisor to learn more about your wage garnishment obligations for your work state locations.