Just about everyone knows that it’s not a good idea to rack up a lot of financial debt. What might not be as well known are some of the potential consequences. 

Depending on the nature of the debt and who you owe, you could end up seeing your wages garnished. There are federal laws designed to establish clear rules for garnishing wages. However, each state has its own set of laws for wage garnishment, and they can vary significantly from one another. 

If you want to stop your wages from being garnished, you should talk with a tax professional. They can shine some light on the specific laws in your state and offer solutions to help you settle your outstanding debt. 

What Is Wage Garnishment?

Wage garnishment is a legal process for collecting money that can be utilized by certain creditors that are owed a financial debt. Once enacted, your employer will be required to withhold a certain percentage of your paycheck each pay period. 

The amount will be sent directly to the creditor and is applied to the overall debt obligation. The garnishment will continue until the debt is settled or you’ve reached a separate agreement with your creditor. 

Who Can Use Wage Garnishment?

Depending on the type of debt, the creditor might have to seek out a court order before wage garnishment can begin. Credit card companies, medical professionals, or retail-based creditors would first have to sue you and obtain a monetary judgment by the court. The judge would make their ruling and determine if wage garnishment was an acceptable collection option. 

Court orders won’t be necessary for other types of debt. If you fall behind on student loans, child support, alimony, or back taxes, then you could have your wages garnished without a court order. The only thing these agencies would need to do is provide you with a notice of impending garnishment and an opportunity for you to object. 

What Are the Federal Guidelines On Wage Garnishment?

The exact details for wage garnishment can vary depending on the state, but they all must follow federal guidelines. Wage garnishment can result in a lot of money being taken out of your check each period, so you should try to avoid wage garnishment at all costs. 

It would be wise to consult with a tax attorney and learn more about your options. They can recommend alternative methods of paying your debts that don’t involve having parts of your paycheck withheld. 

Depending on the type of debt that you have, there are substantially different limits:

Judgment Creditors

Debts permitted by court order are a bit complicated and require some math. These debts can only seize the lesser of 25% of your disposable income or the amount that exceeds 30 times the federal minimum wage. 

For example, let’s say that you make $500 a week after taxes, insurance, and other deductions are taken out. If 25% of 500 is 125, then one of your options would be $125. The federal minimum wage is currently $7.25, and 30 times that amount is $217.50. If you make $500 a week, then you make $282.50, more than 30 times the minimum wage. So, in this case, you could only have up to $125 garnished each week. 

If you were making $250 a week, it would be the opposite scenario. Since 25% of 250 is 62.5, then one option is $62.50 a week. However, subtracting $217.50 from $250 would only be $32.50. Since this number is lower, you would only have $32.50 garnished each week. 

Student Loans

The United States Department of Education can garnish a maximum of 15% of your disposable income each pay period. They do not require a court order, but you will have to be notified and given an opportunity to object. Filing for bankruptcy can stop wage garnishment for student loans. However, the debt is not erased by bankruptcy, and garnishment can continue to occur in the future.   

Child Support and Alimony

Unless specifically agreed to be handled out of court, child support and alimony payments are directly withheld from paychecks. Up to 50% of your disposable income can be garnished for child support or alimony as long as you are currently supporting a spouse or child not listed on order. The limit increases to 60% if you are not also supporting a spouse or child. Being more than 12 weeks behind can result in an additional 5% penalty being added on. 

Tax Debts

The rules for unpaid back taxes are a little murkier. The IRS will determine how much to garnish based on your number of dependents and your standard deduction amount on your returns. The IRS does not need to obtain a court order to begin garnishment but is required to notify you before it starts. 

What Are the State Laws On Wage Garnishment?

Each state has its own specific laws regarding wage garnishment and your rights. They can also vary on their overall statute of limitations. It’s best to consult with a local tax attorney to get a complete listing of your state’s specific garnishment laws. 

Here is a brief summary of each state’s wage garnishment rules:

The Takeaway

The state guidelines for wage garnishment can vary significantly. If you are at risk for wage garnishment, you should consult with a local tax attorney now. Tax experts like the ones at Coast One Financial Group can help you figure out the best way to settle your debts and end wage garnishment.  

SOURCES

Information About Wage Levies | Internal Revenue Service

Can student loans be cleared through bankruptcy? | The Conversation

Wage Garnishment Calculator | Good Calculators

What Is Wage Garnishment? | US News

Wage Garnishment: How It Works and What You Can Do | NerdWallet