Summary: Wage or salary garnishment occurs when there is a court order requiring the employer to deduct a certain amount from an employee's paycheck to pay a debt.

Have you ever received your paycheck only to quickly realize you’ve been paid far less than you expected? If you’re an employer, have you ever received a court order to withhold money from an employee’s paycheck in addition to taxes? The common thread to both these situations is garnishment and in this article, we’re going to explain what it is, how it affects employees, and the laws that regulate this activity.

What is Garnishment?

Suppose you took a loan from a bank and have fallen way behind on your payments. Fed up, the bank obtains a court order to have your employer withhold funds from your paycheck and pay them to the bank.

This is a garnishment, the process of a third party collecting money owed by a debtor to pay a creditor or other receiver. 

In the example above, you would be called the “debtor”. The bank would be called the “garnishor” and your employer would be the “garnishee”. 

Garnishment can be used to collect any kind of debt. However, the most commonly garnished debts include:

  • Bank loans
  • Child support payments
  • Court costs and fees
  • Court-ordered judgments
  • Non-tax debts owed to federal agencies (fines, penalties, small business loans, etc.)
  • Student loans
  • Taxes

Types of Garnishments

There are different ways that creditors or receivers can collect what’s owed to them through garnishments. The most common methods are wage garnishment, bank garnishment, tax refund garnishment, and attachments.

Wage Garnishments

When most people think of garnishments, they think of having part of their wages withheld by an employer. With wage garnishment, an employer receives a court order to withhold a portion of an employee’s paycheck every pay period until their debt is paid.

Employers cannot refuse to process garnishments or legally terminate workers to avoid processing them. Instead, they’re required to include the garnishments as deductions during the payroll process.

Bank Garnishments

If a creditor wins a judgment against a debtor, they may be able to garnish funds from the debtor’s bank account. This type of garnishment is generally used when the debtor isn’t currently employed, yet has funds in their bank account.

It’s important to note that certain types of supporting income coming into their accounts may be protected from garnishment, however. These can include spousal support, Social Security benefits, veteran’s benefits, and worker’s compensation income.

Tax Refund Garnishments

If a debtor owes federal or state debts or defaulted federal student loans, the Internal Revenue Service (IRS) can access the funds from their federal tax refund to address them. Tax refund garnishment, also known as offset, can also be used to pay for unpaid taxes and overdue child support payments. In most cases, the IRS is not required to obtain a court order and can garnish tax refunds as necessary.

Attachments

An attachment is a special type of garnishment by which a debtor’s earnings or property held by a third party may be taken by a court to pay a debt. Rather than recurring on each paycheck like a wage garnishment, an attachment process takes all the funds or property at once. These are therefore normally used to pay smaller or non-recurring debts.

Legal Restrictions on Garnishments

Garnishments are generally ordered by courts, except in the case of the IRS, which can normally act without a court order. However, there are limits to garnishments that need to be considered.

Federal Laws

The main federal legislation on garnishments in the US is Title III of the Consumer Credit Protection Act (CCPA). This federal wage garnishment law restricts the amount that a worker’s wages can be garnished. This limit is either: 

or

  • The amount by which their disposable income exceeds 30 times the federal hourly minimum wage (currently $7.25/hour, therefore $217.50),

whichever is lower.

However, garnishments for alimony and child support can be higher. According to the CCPA, the worker’s wages can be garnished up to:

  • 50% of the worker’s disposable weekly income if the debtor is supporting another child or spouse

or

  • 60% if the worker is not supporting another child or spouse.

Finally, the CCPA protects the right of the worker not to be dismissed by their employer because of the garnishment of any single debt. Employers found to have contravened this law can face fines of $1000 and sentences of one year in prison.

State Laws

Four states – Texas, South Carolina, North Carolina, and Pennsylvania – have laws that prevent wage garnishment. Though they still allow garnishment for some student loans, taxes, unpaid child support, and court-ordered fines, they bar this process for loans, alimony, and other personal or professional debts. Only 13 states follow federal limits for garnishments, while the remaining states have their own laws or follow federal laws with some extra exceptions. 

For example, Arizona allows garnishments of only 10% of disposable earnings or 60 times the applicable minimum hourly wage, whichever is lower.

How to Garnish Employee Wages

If you’re an employer of even a moderate-sized staff team, chances are good that you’ll need to process a garnishment order at some point. If an employee has an unpaid debt, their creditor will attempt to obtain a court order.

If they can, this order will be served on you as the employer. You’ll be ordered to withhold the employee’s wages until this debt is paid, and as this is a legal order, you cannot refuse it. 

The best practices for processing wage garnishments include:

  • Check state and federal laws: Ensure you know whether the garnishment is legal in your state and, if so, how much you can legally garnish from the employee’s salary. As the employer, you’re responsible for setting this amount based on the employee’s disposable earnings. 
  • Set up a regular payroll deduction: Once the garnishment amount or percentage is selected, set this up in your automated payroll system to help save yourself processing time and to maintain the accuracy of your payroll calculations.
  • Process garnishments promptly: Quickly processing garnishments will help keep the repayment schedule on track and prevent you from being accused of intentionally delaying the process.
  • Inform the employee: In most cases, the employee will already know about a court-ordered garnishment. However, it’s always a good idea to communicate clearly with the employee to let them know how much you’ve calculated to withhold from their paycheck and how long you expect to have to garnish their wages. Make it clear, also, that you’re obeying a court order and that the garnishment is not your choice.
  • Notify the authorities if the worker leaves your employ: To the best of your ability, notify the court that ordered the garnishment and the creditor or government agency acting as the garnishor quickly if the worker resigns or simply disappears. This will protect you from any liability, but you’ll still need to process and garnish the worker’s final paycheck.

How to Avoid Garnishment

As you can probably guess, garnishment is usually a last resort for creditors and is used when they have no other options to retrieve their funds. Garnishment is therefore highly damaging to the debtor’s credit score and should be avoided if at all possible.

If you’re at risk of this or a creditor has notified you that they will seek garnishment, you may still be able to avoid it from happening. Creditors still have to go through the time-consuming and sometimes expensive procedure of obtaining a court order of garnishment, which is likewise something they’d prefer to avoid. You can contact your creditors and try to arrange a repayment plan that doesn’t involve garnishment, one that may also be more manageable for you as well.

However, if you believe the garnishment or the debt itself is unfair, you may be able to legally challenge a garnishment order with the help of a lawyer.

The Final Word on Garnishment

Garnishment involves a court ordering a third party, like an employer, to withhold a debtor’s money or earnings to pay a creditor, or the IRS doing the same. For employers, this usually means they are required to withhold a portion of their employee’s pay each pay period and remit that portion to the creditor.

While this is a last resort and harmful to the debtor’s credit, they’re also protected by limits on garnishments to help them avoid destitution. What’s best for everyone, however, is to avoid garnishments through proper financial management and prompt payment of debts.

FAQs

No, these procedures are similar but not identical. With garnishment, a third party is ordered to take away funds of the debtor that they pay or hold. A writ of execution is an order to seize valuable property or funds directly from the debtor.

No, garnishments are generally taken from disposable income, which means income, Social Security, and Medicare taxes are taken off an employee’s wages before they can be garnished.