Understanding the perils of garnishment
can happen to you. Fail to pay taxes, skip out on child support or overlook
some bills. One day down the road, you open your paycheck to find that it's
shrunk. Uncle Sam, your state government or another creditor has collected some
of your wages.
These folks take their cut thanks to a process known as wage garnishment.
This legal procedure allows for a portion of an individual's earnings to be
withheld by an employer to satisfy a debt.
And the money comes out before you even see your pay.
Although having your paycheck garnished may be upsetting, it certainly
shouldn't be a surprise. Garnishment is at the end of the road, after all other
options have been exhausted. Most garnishments require a court order, and employers
are usually required to notify workers about the garnishment before it goes
"This doesn't happen in a vacuum," says Eva Rosenberg,
a Los Angeles tax accountant.
Tax debts are common
Rosenberg, who as the Tax
Mama offers online filing advice, also counsels clients personally. In her
practice, she's seen repentant tax shirkers come to her with 10 to 20 unopened
envelopes -- all letters from the Internal Revenue Service demanding payment
or an explanation on why taxes haven't been paid.
The taxpayer has ignored them, trying to wish them away. Denying
the problem, however, only brings the wayward filer closer to having the bill
paid directly from a paycheck.
"Ignore the IRS and your wages will be garnished," Rosenberg
says. "They know where you live, where you work and where your bank account
The IRS isn't alone in collecting past-due debts this way. State
governments, private creditors or an ex-spouse demanding alimony or child support
can all request garnishment of your pay. In addition to garnishing for taxes,
federal and state governments can seek to attach wages if a person defaults
on government-backed student or business loans.
While the different branches of government don't need a court
order to get a piece of your paycheck, other third parties must petition the
court for redress.
And government creditors can garnish more than your paycheck.
If you receive veteran's benefits, Social Security or other government money,
federal and state agencies can collect from those funds as well.
They can't take it all
Losing any income is never easy, but there are garnishment limits.
Title III of the Consumer Credit Protection Act caps the amount
of wages that can be taken from an owing worker's paycheck. This leaves the
employee some income and prevents creditors from taking excessive amounts to
speed up debt repayment.
The garnishment level is based on an employee's disposable earnings.
This is the amount left over after legally required deductions have been made
for federal, state and local taxes, Social Security, unemployment insurance
and state employee retirement systems.
What doesn't go into the equation are other voluntary deductions,
such as for union dues, health and life insurance, contributions to charitable
causes, purchases of savings bonds, and payments to employers for payroll advances
or purchases of merchandise. These amounts may not be subtracted from gross
earnings when calculating disposable earnings.
When the disposable income amounts is determined, the maximum
amount that can be garnished in any pay period may not exceed the lesser of
- 25 percent of the employee's disposable earnings or
- the amount by which an employee's disposable earnings for the
workweek are greater than 30 times the federal minimum wage.
Under the first scenario, a worker who clears $500 a week would
face a garnishment limit of $125. Under the second, 30 times the current minimum
wage of $5.15 an hour comes to $154.50, meaning wages up to $345.50 can be garnished.
However, thanks to the key phrase "lesser of," this owing worker will
only face the loss of $125 from each paycheck.
Exceptions to the rule
The rules change, however, when it comes to child support and alimony.
law, administered by the Wage and Hour Division of the Department of Labor's
Employment Standards Administration, allows up to 50 percent of a worker's disposable
earnings to be garnished, if the worker is supporting another spouse or child.
If there is no second family to be taken care of, up to 60 percent can be taken.
An additional 5 percent may be garnished for support payments more than 12 weeks
Debtors should keep in mind that the law's limits do not cover
"voluntary wage assignments." These are cases where you work out a
pay arrangement with the IRS or other creditor.
Garnishment restrictions also do not apply to bankruptcy court
orders and debts due for federal or state taxes. If you fall afoul of Uncle
Sam, he can take out as much as he wants from your daily wages.
And if a state wage garnishment law differs from the federal law,
the law that produces the smaller garnishment amount must be followed.
Reducing the take
If your wages are being garnished, you may be able to lower the amount taken
out of your paycheck, says Hillary Arrow Booth, partner with Gardner & Booth,
a Los Angeles law firm.
You need to make the case that the figure listed in the garnishment
order is not enough to support yourself and your dependents. A salesperson,
for example, may need a clothing allowance to continue working.
While it may be possible to whittle away at the garnishment, Booth
says to remember that if your creditor is seeking repayment for a life necessity,
such as chemotherapy, that debt takes precedence over current or future life
Garnishment law limitations also extend beyond dollars. Title
III protects an employee from being fired in some instances because of the debt
"You cannot be fired in retaliation for a garnishment or
because it's a pain for the employer," says Booth.
The protection, however, is not absolute. While an employee cannot
be dismissed for one garnishment, the law does not prohibit discharge if the
employee's earnings have been garnished for second or subsequent debts.
Avoiding the paycheck bite
Of course, the best thing to do is to avoid garnishment altogether.
When it comes to taxes owed, you're much better off negotiating
payment terms than having Uncle Sam or a state revenue office picking at your
paycheck. Just communicating with tax officials sometimes can be enough to forestall
According to Rosenberg, the IRS will give you 20 days' notice
before garnishing your wages. Use this time, she recommends, to "call up
the IRS, apologize, beg for mercy and ask them for a little more time to sort
out the program."
The same holds true for creditors, who generally find it's a hassle
to go to court to get an order to garnish wages. Creditors, too, must give some
warning before they start collecting. It varies by state, but any lead time
allows you an opportunity to call and explain your circumstances, or if you
truly believe you do not owe the money, prove your innocence. Provided you act
in good faith, most creditors will bend over backward to work out an installment
"From a creditor's perspective, the garnishment is a pain
in the neck," Booth says. "They get little dribs and drabs of their
money back, and it's a lot of work to put in place. Very often creditors seek
garnishment simply as a way to get the attention of the debtor. They'd be better
off and so will you if you negotiate a voluntary pay plan."
When you can work out a payment agreement, get a copy. Make sure
that you understand the terms and that the arrangement is something you can
live with and abide by. For example, if you agree to an automatic payment from
your bank account, choose a time in the month when you'll have sufficient funds.
And remember, if you mess up this second chance and quit paying
on the installment plan, you'll quickly find yourself again facing garnishment
"Don't make a payment," warns Rosenberg, "and they're
going to attach your bank account."
-- Posted: Jan. 9, 2003