What is Garnishment in Payroll? Types, How It Works & Limits

Garnishment in payroll is a legal process in which the court orders an employer or creditor to collect funds from an employee’s or debtor’s paycheck or bank account to fulfil certain financial obligations. As a matter of fact, garnishments payroll is usually the last resort to collect debts, which can also potentially harm their credit rating.

Types of Garnishment

It occurs in different forms. These are explained below.

Wage Garnishment

Wage garnishment or payroll garnishment is a legal process in which a creditor secures a court income withholding order requiring an employer to withhold part of an employee’s pay to repay an outstanding debt.

In particular, federal and state garnishment laws set strict limits on how much can be taken. This is usually based on a percentage of the employee’s disposable earnings after mandatory deductions such as taxes. Notably, child support garnishment, IRS wage garnishment, and state tax garnishment are common examples.

Bank Account Garnishment

It allows creditors to collect owed funds directly from employees’ bank accounts. To proceed, creditors need a court wage deduction order to levy bank accounts.

Tax Refund Garnishment

If employees owe back taxes, child support, or certain other eligible debts, government agencies such as the IRS may apply a tax refund toward those unpaid amounts.

Property or Asset Garnishment

This occurs when a creditor secures a court order to take and sell the valuable assets of employees to repay a debt. This can include real estate or personal property such as vehicles, jewellry, or other significant valuable items.

How Garnishment Works?

A creditor must obtain a court order which can prove that the debtor owes money or has defaulted on payment. If the debt happens to be an Internal Revenue Service (IRS) levy, then a court order is not needed.

Wage Garnishment Limits

In some cases, the withheld amount is subject to limits under federal and state wage garnishment laws. For instance, the following details pertain exclusively to wage garnishment.

The Consumer Credit Protection Act sets limits on how much of an employee’s wages can be garnished. The withholding amount is the lower of the following:

25% of the employee’s weekly disposable earnings (if those earnings exceed $290), or
Any amount greater than 30 times the weekly minimum wage, which equals $217.50 ($7.25 × 30).

A maximum of 25% can be garnished for weekly disposable earnings above $290.

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Frequently Asked Questions

Q1.	What is garnishment in US payroll?
Ans.	It is a legal process in which the court orders an employer or creditor to collect funds directly from an employee’s or debtor’s paycheck or bank account. This is done to fulfil certain financial obligations or debts.
Q2.	What is an example of a garnishment?
Ans.	Child support is the most common example. Other examples include student loans, voluntary wage assignments, bankruptcy, tax levies, etc.
Q3.	What types of debts can lead to wage garnishment?
Ans.	Unpaid child support, outstanding taxes, alimony payments, overdue student loans and other additional bills like medical bills or credit card bills can lead to wage garnishment.
Q4.	How much of an employee’s paycheck can be garnished?
Ans.	Title III of the Consumer Credit Protection Act (Title III) restricts the amount of disposable earnings that employers may garnish from employees. These limitations vary for ordinary garnishments, child support and alimony. Ordinary Garnishment: In any workweek or pay period, an employer may garnish only the smaller of these two amounts. This is either up to 25% of the employee’s disposable earnings, or the portion of disposable earnings that exceeds 30 times the federal minimum wage. Child Support and Alimony: An employer can withhold up to 50% of an employee’s disposable earnings if the employee is supporting another spouse or child who is not covered by the support order. In case the employee is not supporting anyone else, up to 60% may be withheld. In cases where support payments are more than 12 weeks overdue, an extra 5% can be added to the garnishment amount.
Q5.	Are garnishment limits different in each state?
Ans.	Yes, these rules vary by state.
Q6.	Can an employee dispute or stop a wage garnishment order?
Ans.	Yes, an employee can dispute or sometimes stop wage garnishment, but only under specific circumstances. Most importantly, the employee must file a written objection with the court within a strict deadline under state or federal law.
Q7.	What should an employer do after receiving a garnishment order?
Ans.	After receiving the order, the employer must first review the notice and notify the employee. They must follow payroll compliance procedures. Next, complete and return any required forms, such as employment verification, by the given deadline. And finally, calculate the correct amount to withhold based on the order and applicable laws, and send payments as instructed. All in all, these steps ensure paycheck garnishment and compliance with the law.
Q8.	Do garnishments show on a pay stub?
Ans.	Yes, any garnishment withheld from the employee’s earnings is reflected under the “deductions” or “other deductions” section of the pay stub.
Q9.	Does garnishment come out before taxes?
Ans.	No, these are withheld from disposable earnings. This means all required taxes, such as income tax, social security, and medicare, are deducted first, and the garnishment is calculated only on the remaining amount.
Q10.	What Is a Garnishment Fee?
Ans.	This is an administrative charge that an employer may deduct from an employee’s pay to cover the cost of processing a wage garnishment order. This fee can be charged to either the employee or the creditor, depending on state law, and is generally nominal, ranging from one to ten dollars per garnished paycheck. Though some states permit a percentage-based charge, too. Since the rules vary by state, employee rights and employer fee allowances can differ significantly.
Q11.	Can multiple garnishments be taken from an employee’s paycheck at the same time?
Ans.	Yes, in some cases, these can be taken from an employee’s paycheck at the same time but there are limits. For example, debts, like credit cards or medical bills, generally only one garnishment is processed at a time, and creditors must wait their turn. However, certain debts, such as child support or alimony, federal or state tax levy garnishment, and defaulted federal student loans can be garnished at the same time as other orders. Even when multiple earnings withholding apply, federal law limits the total amount that can be withheld to protect a portion of the employee’s earnings.