Garnishments BEYOND Child Support

Speaker Rosemarie Fraumeni, CPP Manager, Payroll American Dental Partners, Inc. rfraumeni@comcast.net

Rosemarie Fraumeni, CPP Certified Payroll Professional since 2000 BS in Accounting Involved in payroll since 1991 Member of APA’s National Speakers Bureau Certification Advisory Board – CPP Committee Government Affairs Task Force Member of the APA Boston Local Chapter Current Vice President Member of the New England Payroll Conference Committee Current Conference Chair and Treasurer APA Awards 2010 Payroll Woman of the Year Special Recognition 2008 Meritorious Service 2005

Please Complete Your Evaluation at the End of the Workshop Agenda Involuntary deductions Federal tax levy State tax levy Student loan Creditor garnishment Bankruptcy Please Complete Your Evaluation at the End of the Workshop

Involuntary Deductions

Involuntary deductions Neither the employer nor employee have control

Employer’s responsibilities Is the claim valid? Inform the employee Are there employee exemptions? How will it affect employee’s pay?

Employer’s responsibilities Does it exceed any limits? Will it affect other deductions? Review with legal department

Deduction order Child support Bankruptcy Federal administrative garnishment

Deduction order Federal tax levy Student loan 6. State tax levy

Deduction order Local tax levy Creditor garnishment 9. Voluntary deductions

Federal Tax Levy

IRS Tax Facts A delinquency investigation is opened when a taxpayer does not respond to an IRS notice of a delinquent return. In 2010, the Internal Revenue Service had over 3.6 million delinquency investigations. (Information obtained from IRS web site)

Why are you getting a levy? A levy is the result of the delinquency of an employee to pay owed tax liabilities

Form 668-W

Form 668-W, Part 1 For Employer

Form 668-W, Part 3 I certify that I can claim the people named below as personal exemptions on my income tax return and that none are claimed on another Notice of Levy. No one I have listed is my minor child to whom (as required by court or administrative order) I make support payments that are already exempt from levy. I understand the information I have provided may be verified by the Internal Revenue Service. Under penalties of perjury, I declare that this statement of exemptions and filing status is true.

The federal tax levy “What is the priority of the federal tax levy as compared with other attachments?”

The federal tax levy Payments exempt from the levy Unemployment benefits Workers’ compensation payments Certain pension and annuity payments Certain disability and welfare payments Pre-existing involuntary deductions

The federal tax levy Wage exemption

The federal tax levy Publication 1494

Levy deductions lasting into successive years The federal tax levy Levy deductions lasting into successive years 2012 2013 2014 2015 2016

The federal tax levy Subtract these before determining take-home pay… Taxes Existing deductions Some increases in existing deductions

The federal tax levy Post-levy deductions or increases to existing deductions lower the exempt amount

The federal tax levy Payments of any type are subject to levy

The federal tax levy When do we stop withholding?

The federal tax levy Form 668-D

50 600 3/11/12 242 X 5,000 Month

When employment ends Complete the back side of 668-W, Part 3 and return it to the IRS

Voluntary agreement Employee may contact the IRS to negotiate a voluntary agreement

Voluntary agreement Employee may file Form 2159

State Tax Levy

State Tax Levy CALIFORNIA – follows CCPA limits

State Tax Levy NEW YORK – 10% of gross earnings

State Tax Levy SOUTH CAROLINA – 25% of gross earnings

IOWA – 100% of disposable earnings State Tax Levy IOWA – 100% of disposable earnings

State Tax Levy IDAHO – 100% of wages

Student Loan

Student Loan Maximum deduction the lesser of: 15% of disposable earnings, or 30 times the federal hourly minimum wage

Student Loan Protection from discharge

Student Loan Notice before garnishment 30 days before withholding begins

Student Loan No guidance on priorities

Student Loan Grace period after reemployment 12 months

Student Loan Penalties Liable for any amount not withheld plus legal costs

Creditor Garnishment

What is a creditor garnishment? An employee has a debt that remains unpaid

What is a creditor garnishment? A wage garnishment is a legal means by which the person who is owed the money can obtain payment

What is a creditor garnishment? “Wage attachment” “Income execution” “Writ” “#@% !”

Disposable Earnings Consumer Credit Protection Act (Title III)

Disposable Earnings Maximum amount of an employee’s “disposable earnings”

Disposable Earnings Disposable earnings = Gross earnings minus all deductions required by law

Disposable Earnings Deductions required by law include withholding: Federal, state, or local income tax

Disposable Earnings Deductions required by law include withholding: Mandated payments for state employee retirement systems

Garnishment Limits Maximum amount of an employee’s “disposable earnings” is lesser of: 25% of the employee’s disposable earnings for the week, or…

Garnishment Limits …the amount by which the employee’s disposable earnings for the week exceeds 30 times the federal minimum wage

Garnishment Limits State laws may still apply

Garnishment Limits State law garnishment limits apply when they require a lesser amount to be garnished

Federal Minimum Wage $7.25 $7.25 per hour

AMOUNT SUBJECT TO GARNISHMENT Maximum Deduction AMOUNT SUBJECT TO GARNISHMENT Weekly Disposable earnings are $217.50 or less: NONE Disposable earnings are more than $217.50 but less than $290.00: AMOUNT ABOVE $217.50 Disposable earnings are $290.00 or more: MAXIMUM 25%

State Rules ST Disposable earnings Garnishment limits Administrative Fee AL That part of the earnings of a debtor remaining after deduction of amounts required by law to be withheld. Does not include periodic payments pursuant to a pension, retirement, or disability program. 75% of weekly disposable earnings exempt from withholding. No provision.

State Rules ST Disposable earnings Garnishment limits Administrative Fee AZ That remaining portion of a debtor’s wages, salary or compensation for personal services, including bonuses, commissions, payments pursuant to a pension or retirement program or deferred compensation plan, after deducting from such earnings those amounts required by law to be withheld. CCPA limits. However, court may determine at a hearing that judgment debtor or his family would suffer extreme economic hardship as a result of the garnishment and reduce the amount of nonexempt earnings withheld under a continuing lien ordered from 25% to not less than 15%. $5 per pay period, deducted from nonexempt earnings of judgment debtor. If there is not enough income to collect the fee and it remains owed when the writ becomes invalid or is released, the uncollected fee is chargeable against the creditor, not the judgment debtor.

State Rules ST Disposable earnings Garnishment limits Administrative Fee AK The following will be treated as earnings: (1) Disability, illness, or unemployment; (2) alimony; (3) insurance proceeds; (4) amounts paid under a stock bonus, pension, profit-sharing, annuity or similar plan providing benefits. Net earnings of an individual are determined by subtracting from the gross earnings all sums required by law or court order to be withheld. $350 or $550, if individual’s earnings alone support household. Student loans: $5 per payment, deducted from other wages or salary owed to the borrower.

State Rules ST Disposable earnings Garnishment limits Administrative Fee CA “Earnings” means compensation payable for personal services performed, whether denominated as wages, salary, commission, bonus, or otherwise. CCPA limits. However, portion of debtor’s earnings which is necessary for the support of the judgment debtor or family is exempt from levy. This does not apply if: (1) debt was incurred for common necessaries of life or incurred for personal services rendered for employer; (2) order is a withholding order for support or a state tax order. $1.50 per payment, deducted from employee’s earnings.

State Rules ST Disposable earnings Garnishment limits Administrative Fee SC No provision. Earnings of a debtor for personal services may not be garnished by creditors.

State Rules ST Disposable earnings Garnishment limits Administrative Fee PA For purposes of amounts owed to creditor-landlord…, “net wages” means all wages paid less only the following items: federal, state and local income taxes; FICA payments and nonvoluntary retirement payments; union dues’ and health insurance premiums. Generally, wages salaries and commissions of employees are exempt from garnishment while in the hands of the employer… No provision.

State Rules ST Disposable earnings Garnishment limits Administrative Fee TX No provision. State constitution prohibits current wages for personal service to be subject to garnishment, except for the enforcement of court ordered: (1) child support payments or (2) spousal maintenance. No general provision

Multiple Garnishments Federal garnishment maximum applies no matter how many garnishments are received

Areas of state regulation The priority of multiple garnishments

Exceptions Wages subject to withholding for child support, tax levies, or bankruptcy orders are not considered deductions required by law

Exceptions Withholding for child support, tax levies, or bankruptcy orders are not to be subtracted from gross earnings

Areas of state regulation Time limits for remitting withheld amounts

Areas of state regulation Whether the employer can charge an administrative fee for processing the garnishment

Areas of state regulation The procedure to follow when an out-of-state garnishment order is received

Discharge Employers are prohibited by the CCPA from terminating an employee because of the employee’s one indebtedness

Bankruptcy

Bankruptcy Chapter 7 Liquidation of assets Cancellation of debts Start over

Bankruptcy Chapter 11 Business Reorganization Trustee pays creditors

Bankruptcy Chapter 13 Individuals Reorganization Trustee pays creditors

Bankruptcy Employee voluntarily declares bankruptcy

Bankruptcy Employee is found to be bankrupt by a court

Bankruptcy Stop withholding on any other garnishment order (except for child support)

General Rules Continuing to withhold and remit other orders could result in a creditor receiving double payments

General Rules Continue to withhold for other garnishments only if the trustee specifically provides instructions to do so

Bankruptcy An amount of the employee’s wages are withheld and paid to the trustee

Bankruptcy The payment to the employee’s creditors is handled by the “bankruptcy trustee”

Bankruptcy The payment satisfies the employee’s creditors

General Rules The debts underlying the bankruptcy will be paid by the trustee

Bankruptcy Continue to satisfy the bankruptcy order until notified by the court to stop

General Rules Bankruptcy orders issued under Chapter XIII of the Bankruptcy Act take priority over any other claim…

General Rules …other than child support withholding orders...

General Rules …and retirement loans

Additional Resources APA’s Guide to Federal and State Garnishment Laws americanpayroll.org 95