Marlene Mitten Garnishment Manager Hewitt Associates
Marlene Mitten Garnishment Manager Hewitt Associates
Marlene Mitten Garnishment Manager Hewitt Associates
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<strong>Marlene</strong> <strong>Mitten</strong><br />
<strong>Garnishment</strong> <strong>Manager</strong><br />
<strong>Hewitt</strong> <strong>Associates</strong>
A little about me…..<br />
Over 20 years of payroll experience<br />
• 6 years managing a garnishment<br />
department<br />
• CPP - 2001<br />
• Mother of 2 teen-age daughters ☺
Two Types of <strong>Garnishment</strong>s<br />
Involuntary – EE & ER –No control<br />
(Child Support, Tax Levy, etc.)<br />
Voluntary - EE Voluntarily Agrees<br />
(Wage Assignment, IRS Voluntary<br />
Agreement, etc.)
Involuntary Deductions<br />
Statutory Deductions also known as “Involuntary<br />
Deductions” are deductions which an employer or<br />
employee has no control because they are required by law.<br />
Seven types:<br />
• Tax levies<br />
• Child Support Withholding Orders<br />
• Creditor <strong>Garnishment</strong>s<br />
• Bankruptcy orders<br />
• Student Loan Collections<br />
• Federal Agency Debt Collections<br />
• Federal Wage-Hour Law Restrictions on Deductions
Involuntary Deductions<br />
Mandated by federal and state laws<br />
Neither the employer or employee has<br />
control<br />
If not Withheld - Penalties could equal the<br />
amount of debt plus fines and interest
Employer Responsibilities<br />
• Comply With the Order<br />
Withhold Required Amounts<br />
Complete required interrogatory/answer<br />
Remit Amounts to Agency<br />
Notify the Employee and provide required<br />
documentation (ie: 668W p. 2-5)<br />
Notify agency if employee terminates<br />
employment
Recordkeeping & Tracking<br />
Log garnishments by date received,<br />
employee name and type<br />
Prepare a worksheet with all pertinent<br />
information<br />
Keep a copy of garnishment on file<br />
Record when deductions are taken and<br />
payments are remitted
Tax Levies<br />
Levy can be for unpaid federal or state taxes<br />
Tax levy withholding rules vary by state<br />
Some state tax levies can withhold 100% of<br />
disposable earnings
Federal tax levy<br />
Tax Levies<br />
• Form 668-W Notice of Levy on Wages, Salary, and other<br />
Income - contains 6 parts<br />
• Part 1 – employer’s copy – shows amount of levy<br />
• Part 2 thru 5 – give to employee<br />
• Part 2 – employee keeps<br />
• Parts 3 thru 5 – employee needs to complete and<br />
return Parts 3 & 4 of the Form 668-W to employer<br />
within 3 days of the date the employer receives the<br />
form<br />
• Part 6 – kept by IRS
Tax levies<br />
• If employee does not return Parts 3 & 4 of Form 668-W,<br />
exempt amt is calculated based on married filing<br />
separately with one exemption<br />
• Employee is entitled to exempt amount – based on year<br />
levy is received – even when levy will span more than<br />
one tax year unless employee completes new Parts 3 & 4<br />
• Exempt amount (Publication 1494) is based on the<br />
standard deduction amount that you claim when you file<br />
your taxes<br />
• Direct Deposit is NOT a “pre levy” deduction
Tax levies<br />
Only deductions in effect at time of receipt of levy<br />
are valid – any new elected deductions are not to be<br />
considered as part of take home pay (subject to IRS<br />
exemptions)<br />
Employee with two jobs – unless IRS notifies<br />
employer to reduce exempt amount, employer is to<br />
calculate “take home pay” as if second job did not<br />
exist<br />
Payments to IRS are to be remitted on pay date to<br />
employee
Federal Tax Levy – Example<br />
Employee paid bi-weekly $1,600<br />
• Part 3 Form 668 W - Married/Joint 2 Exemptions<br />
Deductions<br />
• Fed Tax $ 85<br />
• SS Tax 99<br />
• Medicare Tax 23<br />
• State Tax 40<br />
• 401(k) (3%) 48<br />
• Health Ins 55<br />
• <strong>Garnishment</strong> 50<br />
-------<br />
• Total Deductions $ 400<br />
● Take Home Pay: $1,600 – 400 = Take Home Pay
IRS Publication 1494 - 2010
Federal Tax Levy – Example<br />
Take Home Pay<br />
• $1,200 ($1,600 - $400)<br />
Exempt Amount (Table – Pub 1494)<br />
• $ 719.23<br />
Amount Subject to Levy<br />
• $480.77 ($1,200 - $719.23)<br />
• New voluntary deductions should not reduce amount<br />
subject to levy
Tax levies<br />
• Employer should not stop withholding until Form<br />
668-D, Release of Levy/Release of Property from Levy<br />
received<br />
• If employee no longer working, or terminates<br />
employment while levy in place, return Part 3 to IRS<br />
with employee’s last known address<br />
• If employer chooses to ignore tax levy, employer is<br />
liable for full amount plus interest, and 50% penalty<br />
of amount recovered by IRS<br />
• Voluntary deduction agreement – “Payroll Deduction<br />
Agreement” – may prevent levy for employee
Tax Levies<br />
QUESTIONS ?
Creditor garnishments<br />
Wage garnishment – legal means by which the<br />
person owed the money can obtain payment<br />
Creditor must obtain a court order to withhold<br />
before employer is required to withhold for debt<br />
Consumer Credit Protection Act (CCPA) governs<br />
amount that can be garnished and freedom to<br />
discharge an employee because employee’s wages<br />
have been garnished<br />
Amount cannot exceed 25% of disposable earnings<br />
or federal minimum hourly wage times 30
Creditor garnishments<br />
• Disposable earnings = gross minus deductions required<br />
by law (federal, state & local income tax, Social Security<br />
& Medicare, state unemployment or disability tax, and<br />
mandated payments for state employee retirement<br />
systems)<br />
• Wages already subject to withholding for child support<br />
orders, tax levies, or bankruptcy orders are not<br />
considered deductions required by law<br />
• Employer cannot terminate employment if employee’s<br />
“earnings have been subjected to garnishment for any<br />
one indebtedness”; watch state laws also
Creditor <strong>Garnishment</strong>s<br />
State Regulations Include:<br />
• Amount Subject to <strong>Garnishment</strong><br />
• Priority of Multiple <strong>Garnishment</strong>s<br />
• Duration of <strong>Garnishment</strong><br />
• Time Limits for Remitting Withheld<br />
Amounts<br />
• Administrative Fee & Penalties
Maximum Amount of Disposable to Garnish<br />
Lesser of:<br />
Creditor <strong>Garnishment</strong>s<br />
25% of Disposable for Week, or<br />
The amount of the disposable earnings that<br />
exceed 30 times the federal minimum wage<br />
(30 x $7.25 = $217.50)
Creditor <strong>Garnishment</strong>s - Example 1<br />
EE’s Weekly Disposable Earnings = $250<br />
• <strong>Garnishment</strong> for $300<br />
Lesser of:<br />
• 25% of Disposable = $62.50<br />
• $250 - $217.50 = $32.50<br />
Maximum Amount to Withhold = $32.50
Creditor <strong>Garnishment</strong>s - Example 2<br />
Multiple garnishments - Take ‘Into Account’ Other<br />
<strong>Garnishment</strong>s<br />
Weekly disposable is $500<br />
• 25% of disposable = $125<br />
• Disposable – 30 x Fed Min Wage ($500 - $217.50 = $282.50)<br />
• Maximum Amount to withhold = $125<br />
Deduct garnishment of higher priority (ie: child support)<br />
Child support deduction for $100<br />
$125 - $100 = $25 (amount to withhold for creditor garnishment)
Creditor <strong>Garnishment</strong>s<br />
QUESTIONS ?
Bankruptcy<br />
Governed by Federal Bankruptcy Code<br />
Cease Other <strong>Garnishment</strong>s (except child support)<br />
Amounts Paid to Trustee<br />
Priority – Takes priority over any other claim,<br />
including federal and state tax levies received before<br />
the order, other than Child Support Orders<br />
Discharge of Employee Prohibited<br />
Beware of post petition debts
Bankruptcy<br />
QUESTIONS ?
Student Loans & Federal Agency<br />
- Debt Collections<br />
HEA – Higher Education Act of 1991 – for payment of<br />
delinquent loans<br />
DCA – Debt Collection Improvement Act of 1996 – allows<br />
federal govt agencies that provide (non-tax) funds to<br />
individuals to garnish for nonpayment (including student<br />
loans from the US Department of Education)<br />
HEA’s and DCA’s generally withhold 15% of disposable –<br />
CCPA limits apply<br />
DCA’s definition of disposable includes health insurance
Student loan collections<br />
Student loan garnishments have restrictions:<br />
• No more than the lesser of 15% of disposable income or 30<br />
times federal hourly minimum wage<br />
• If more than one student loan garnishment received, total<br />
garnished amount is the lesser of 25% of disposable income<br />
or 30 times federal hourly minimum wage<br />
• Employee cannot be terminated because of garnishment<br />
• Employer should continue to withhold until a release is<br />
received<br />
• Notify agency if employee terminates employment
Student Loan Collections<br />
• If employee is laid off or involuntarily separated<br />
within 12 months, employee has 12 months from<br />
date of reemployment before order becomes<br />
effective again<br />
• Employers who fail to comply with student loan<br />
collection order is liable for amount not withheld,<br />
punitive damages, court costs, & attorney fees
Student Loans & Federal Agency<br />
- Debt Collections<br />
Q u e s t i o n s ??
Federal Wage Hour Law<br />
Restrictions on Deductions<br />
FLSA - restrictions on deductions when they bring the employee’s<br />
wages below minimum wage and overtime pay guaranteed by the<br />
Act.<br />
• Board, lodging, & other facilities<br />
• can be deducted and can cause wages to fall below minimum wage if<br />
accepted voluntarily by the employee and is for employee’s benefit<br />
• Buying & maintaining uniforms<br />
• Required uniforms that cannot be worn used as “normal streetwear”<br />
and employer pays for uniform, cleaning & maintenance the cost<br />
deductions cannot reduce pay below minimum wage
Federal Wage Hour Law<br />
Restrictions on Deductions<br />
• Loans to employees<br />
• deduction for principal can reduce wages below minimum<br />
wage;<br />
• interest or admin cost deductions cannot reduce wages below<br />
minimum wage<br />
• Salary advances & overpayments<br />
• deductions due to bookkeeping errors can reduce pay below<br />
minimum wage. Employee and FLSA minimum wage laws do not<br />
apply
Federal Wage Hour Law<br />
Restrictions on Deductions<br />
• Docking pay for missed time<br />
• if deduction equals pay for time lost, no FLSA violation has occurred;<br />
it can be deducted.<br />
• if an additional penalty amount is deducted, that amount cannot<br />
reduce the employees wages for the minimum required for the hours<br />
actually worked – that would constitute pay below FLSA minimum<br />
wage.<br />
• Deductions for taxes<br />
• Taxes for Federal, State and local income taxes, and the<br />
employee’s share of Social Security and Medicare are considered<br />
wages paid to employee and FLSA minimum wage laws do not<br />
apply<br />
• Employer cannot deduct any amount from employee’s wages to<br />
pay employer’s share of any tax
• <strong>Garnishment</strong>s & Wage assignments<br />
• can be deducted even if deduction(s) reduce pay below FLSA<br />
minimum wage laws<br />
• Any amount deducted in excess of the CCPA limits cannot<br />
reduce the wages below FLSA minimum wage laws<br />
• Union Dues<br />
Federal Wage Hour Law<br />
Restrictions on Deductions<br />
• if required by union contract, FLSA minimum wage laws do not<br />
apply and it can be taken<br />
• Cash Shortages, Bad Checks<br />
• Employers may not take the deduction from non-exempt<br />
employees, if the deduction will reduce pay below FLSA<br />
minimum wage; it cannot be taken
Federal Wage Hour Law<br />
Restrictions on Deductions<br />
• Employer Insurance Bonds - employer buys an insurance<br />
policy against fraud and negligence attributed to the employee –<br />
“bonds” the employee<br />
• Employer cannot required the employee to pay for the insurance<br />
before the employee starts employment<br />
• Cost of the bond may be spread out and deducted from the<br />
employees wages, but only to the extent the deductions do not<br />
reduce the employee’s wages below FLSA minimum wage
Federal Wage Hour Law<br />
Restrictions on Deductions<br />
Q u e s t i o n s ??
Involuntary Deductions<br />
Statutory Deductions also known as “Involuntary<br />
Deductions” are deductions which an employer or<br />
employee has no control because they are required by<br />
law.<br />
Six of Seven types:<br />
• Tax levies<br />
• Creditor <strong>Garnishment</strong>s<br />
• Bankruptcy orders<br />
• Student Loan Collections<br />
• Federal Agency Debt Collections<br />
• Federal Wage-Hour Law Restrictions on Deductions