a to z of garnishments part 2: tax levies and creditor

©2016 The Payroll Advisor 1

A to Z of Garnishments Part 2: Tax Levies and Creditor Garnishments

Presented on Tuesday, May 10, 2016

Housekeeping

©2015 The Payroll Advisor

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topic Speaker

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Our Focus For Today


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Terms, Definitions and Priorities

Laws and Regulations

Federal Tax Levies

Federal Agency Debt Collections

State Tax Levies

Creditor Garnishments

Voluntary Wage Assignments

Bankruptcies

Student Loans

About the Speaker


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Vicki M. Lambert, CPP, is President and Academic

Director of The Payroll Advisor™, a firm specializing

in payroll education and training. The company’s

website www.thepayrolladvisor.com offers a

subscription payroll news service which keeps

payroll professionals up-to-date on the latest rules

and regulations.

As an adjunct faculty member at Brandman

University, Ms. Lambert is the creator of and

instructor for the Practical Payroll Online payroll

training program, which is approved by the APA for

recertification credits.

http://www.thepayrolladvisor.com/

Usual Suspects


Child Support

Federal Tax Levy

Federal Agency Debt Collection

State Tax Levy

Creditor

Student Loans*

Bankruptcies*

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*Not really sure where they fit in

until received

Exceptions on Priority


Federal tax levy is received prior to child support order

Federal Agency Debt received prior to tax levy

Bankruptcy may include other levies and child support and therefore goes first

Student loans fall in with creditor

State tax levy and creditor depend on state requirements

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Consumer Credit Protection Act


Limits the amount that can be deducted from “disposable pay” for child support and creditor garnishments

Limits apply if more than one garnishment is in effect

Does not apply to federal or state tax levies

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Terminating Employees


Garnishments and tax levies are a per payroll event

Take normal deduction

Do the required notifications

Watch for the state tax levies—may require entire amount taken

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Federal Tax Levies


Form 668-W Notice of Levy on Wages, Salary and Other Income

Amount of deduction based on Publication 1494

Chart lists amount exempt from levy

Deduct from “take home pay”

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Form 668-W


Six part form (Part 6 retained by IRS)

Part 1—Employer’s copy

Parts 2-5 Given to employee

Part 2 – Employee’s copy to keep

Parts 3-5 require employee to complete information

Part 3 and 4 are returned to employer within 3 days

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Form 668-W


Employee keeps part 5

Payroll gets back parts 3 and 4

Payroll keeps Part 4 and sends in Part 3

If not received use married filing separately plus one personal exemption

Do not use Form W-4

Use same chart even if year changes unless employee submits new form

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Allowances On Part 3


Employee completes this part

Employee counts as one exemption as well

You may add the employee if they fail to do so since you have the social security number

SSN must be there for all exemptions or they don’t count

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Answering Back


Form 668-W has a required response back from the employer

Send in with the first payment

Make copies for yourself for when employee terminates

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What is Meant by Take Home Pay


Subtract the following in calculating take home pay: Taxes

Voluntary and involuntary deductions in effect before the levy is received

Increases in preexisting deductions beyond the employee’s control

Condition of employment deductions that come after the levy is received

Direct deposit is not counted

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Determining Amount Exempt from Levy


Publication 1494 is used to determine the amount exempt from levy

Changes each year

Use the exemptions and filing status the employee submitted on the Form 668-W

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Paying the Levy


Pay on the same day that payments are made or are due to employee or follow the levy instructions

Complete back of Part 3 of form with first payment

Make payable to “United States Treasury”

Put information on check not stub

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Stopping the Levy


Must receive Form 668-D

IRS wants you to continue to withhold until release is received even if it exceeds amount on levy

Call when you are getting close!

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Between Employees and the IRS


New at the IRS—online payments

Employee fills out application online

Makes payments online

Must still get Form 668-D to the employer

Can encourage employees to use

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Voluntary Deduction Agreement


Form 2159 “Payroll Deduction Agreement”

Totally voluntary on both sides

Still need release form to stop original levy

Three-Part Form

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Terminating Employees


Must take out of final paycheck

Must notify IRS of termination

Use copy of answer back section

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X 1-22-15




Student loans not the only kind of federal debt subject to garnishment

Fail to pay nontax debt

Subject to CCPA as well as Debt Collection Improvement Act of 1996

Includes vendor, federal retirement, federal salary, and social security benefits

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Disposable pay includes all wages and salary including vacation pay

Deductions include all mandated deductions plus health insurance premiums

Lesser of: 15% of disposable pay or amount that exceeds 30 times the current minimum wage

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Has priority if served first

But not over child support even if it comes later

An amount equal to 25% of disposable pay less the amount(s) withheld under the withholding order(s) with priority

Begin when the order says to

End when release is received

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State Tax Levies


CCPA limits do not apply to state tax levies under 15 USC 1673(b)(1)(c)

COULD BE 25% of disposable or the amount that exceeds 30 times the federal minimum hourly wage

COULD BE anything they want it to be—Example KY allows employee to keep $125/week Plus $60 for each dependent

COULD come on a tax levy form or COULD be a letter

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State Tax Levies


Disposable income could match federal or may not even give a definition

May have priority over other creditor garnishments or it may not

Answer back may or may not be required

May be able to collect a fee

Read the garnishment carefully

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Creditor Garnishments


CCPA limits apply except where state is lower

25% of disposable or the amount that exceeds 30 times the federal minimum hourly wage

Some states have severe restrictions

Federal chart furnished-as of July 2009

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More


Disposable Income


Disposable Income = gross pay - mandatory deductions.

Disposable income is the amount of earnings remaining after subtracting certain mandatory deductions from an employee's gross pay.

Mandatory deductions include federal, state and local taxes; unemployment insurance; workers' compensation insurance; state employee retirement deductions; other deductions determined by state law.

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Disposable Income and Net Pay


Note that disposable income is not necessarily the same as net pay. An employee may have a deduction taken from his pay that is not mandatory, such as union dues or a car loan payment.

Watch out for tips to be included

Limit applies even to multiple garnishments

Other garnishments are not subtracted before determining disposable pay

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State Limits


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State(s) Requirement DE, 15% of wages

IL 15% of gross wages or amount which disposable earnings exceed 45 times of the higher of

federal or state minimum wage

WI 20% of disposable earnings

AL, AZ, CA, CO, DC, GA, ID, IN, KS,

KY, LA, MD, MS, MO, MT, NE, NY,

OH, OK, OR, SC, TN, UT, VT, WY

Lesser of 25% of disposable or amount exceeds 30 times federal minimum wage

WA Lesser of 25% of disposable or amount exceeds 35 times federal minimum wage

CT, IA, ME, MN, NM, ND, VA, Lesser of 25% of disposable or amount exceeds 40 times the higher of federal or state minimum

wage

NV, NH, Lesser of 25% of disposable or amount exceeds 50 times the higher of federal or state minimum

wage

WV, Lesser of 20% of disposable or amount exceeds 30 times federal minimum wag

SD, Lesser of 20% of disposable or amount exceeds 40 times federal minimum wag

AK, FL, HI, States limits within code based on dollar amounts

AR, MI, NC, No limits set in code

MA, $125 exempt from levy each pay period

NJ $48 per week are exempt; 10% if wages exceed $7,500 per year

PA, TX Not permitted except in certain circumstances

RI Up to $50 are exempt from attachment

More State Examples


Alaska: Notwithstanding the increased exemption amounts provided for weekly disposable earnings and cash and other liquid assets, the exemption for weekly disposable earnings is $743 and the maximum monthly exemption for cash and other liquid assets is $2,970

Florida: up to $750 per week of the disposable earnings of a head of family are exempt from attachment or garnishment. Disposable earnings greater than $750 a week cannot be attached or garnished unless the employee agrees in writing;

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More State Examples


Hawaii: The maximum that employers can withhold is 5 percent of the first $100 of disposable wages per month, 10 percent of the next $100 per month, and 20 percent of all sums in excess of $200 per month. Disposable earnings are the amount of earnings remaining after the deduction of any amount required by law.

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However, In North Carolina…


The courts of North Carolina are not permitted to order an employer to withhold wages for other types of debts such as car loans, credit card debt, and other personal debt items. While the North Carolina courts are not permitted to garnish wages based on these debts, creditors in other states may be able to get an order of garnishment under their own states’ laws. It is not a violation of the North Carolina Wage and Hour Act for an employer to withhold an employee’s wages if required to do so by law. If a court from another state issues a valid order under that state’s laws requiring an employer to withhold a North Carolina employee’s wages for payment of a debt, the employer does not violate the North Carolina Wage and Hour Act by obeying that order.

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State Fees


Collection of a fee for the employer is sometimes permitted—states with no provisions to collect fees include:

AL, AK, CO, CT, DE, HI, ID, KY, MD, MA, MS, MT, NE, NM, NY, OH, SC, VT, WV, WY

Some states have special provisions for fees such as:

IA only permits witness fees

NH only permits for collection of overpayment of SUI benefits

NC permits only for debts to public hospitals or public assistance payments

PA for collection of taxes only

TN permits for public employers only

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State Fees


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State Fees Permitted Arizona $5 each pay period from nonexempt earnings

Arkansas $2.50 per pay period

California $1.50 for each payment

District of Columbia $2.00 for withholding order

Florida $5.00 for 1st deduction, $2.00 each deduction thereafter

Georgia $50 or 10% of amount paid into court (whichever is greater) but not to exceed $100 as reasonable attorney’s fees or expenses

Illinois 2% of amount to be deducted

Indiana Larger of $12 or 3% of total amount to be deducted ½ of fee from employee, ½ of fee from amount due creditor

Kansas $10 for each 30-day period

Louisiana $3 from nonexempt income each payment garnishment is in effect

Maine $1 per check issued and forwarded to creditor

Michigan $6 fee paid by plaintiff at the time a writ of garnishment is served

Minnesota $15 paid by creditor to employer at time of service of garnishment

Missouri Greater of $8 or 2% of amount withheld. Taken from employee’s wages

Nevada $5 paid by creditor to employer at time a writ of garnishment is served. Employer entitled to$3 per pay period not to exceed $12 per month

New Jersey 5% for compensation towards expenses and services in processing each payment

North Dakota $10 paid by creditor when employer is served with garnishment summons

Oklahoma $10 from employee’s funds for answering a garnishment summons

Oregon $2 processing fee for each week a payment is made unless withholding reduces below minimums. Must collect after last payment is made

Rhode Island $5 paid by employee for each writ of garnishment

South Dakota $15 for garnishee summons being served

Texas Lessor of actual costs or $10 from disposable earnings

Utah $10 for a single garnishment or $25 for continuing garnishment paid by creditor directly to employer

Virginia $10 for each garnishment summons served

Washington $10 processing fee for 1st disbursement and $1 for each subsequent disbursement. $20 for first payment; if continuing lien $10 at time of second

payment

Wisconsin $15 garnishee fee from creditor for each garnishment or extension

State Fees


May also be a fee to collect for the state or court or plaintiff in the case

Read the garnishment

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Voluntary Wage Assignment


Are not the same thing as a court-ordered garnishment

Are voluntary so not covered under CCPA limits

Can be revoked at any time by employee so watch for this

State sets the limit and the rules

State can forbid employer to honor, especially for “small loans”

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Bankruptcy


Governed by the federal Bankruptcy Act

Chapter XIII bankruptcy orders take priority over any other claim against wages including child support and tax levies

Should be included in bankruptcy—verify

Get releases when required—child support

Notify courts if child support is involved-No more automatic stays for child support

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Student Loans


Higher Education Act amended to allow for garnishment of wages to repay student loans

15% of disposable or 30 times federal minimum wage which ever is less

Multiples can use the 25% garnishment limit

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Disposable Pay Is Defined As…


The employee’s compensation including salary, overtime, bonuses, commissions, sick leave and vacation pay minus any deductions for health insurance and deductions required by law.

Deductions required by law or proper deductions include federal, state and local taxes; state unemployment and disability taxes; social security taxes; Medicare taxes; and involuntary pension contributions.

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But They Do Not Include…


Voluntary pension deduction or retirement plan contributions or union dues.

A Wage Garnishment Worksheet is included with the Wage Garnishment Order to assist payroll in calculating disposable pay and the wage garnishment amount.

Also website http://fmsq.treas.gov/debt/AWG_calc.html

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http://fmsq.treas.gov/debt/AWG_calc.html

http://fmsq.treas.gov/debt/AWG_calc.html

Handling a Student Loan Garnishment


ED first notifies the employer that debtor pay must be withheld by sending a Wage Garnishment Order (SF-329B) form

Provides the debtor’s name, address, and social security number as well as instructions for withholding.

The employer then: completes and returns the Employer Certification (ED-329D) within 20 days of receipt

Begins withholding the amount directed in the order—usually within 10 days

Remit within 3 days after withholding

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But What if the Employee is Gone?


If the debtor is no longer employed by your organization when you receive the Order, simply indicate this on the form and return it to ED or call the Administrative Wage Garnishment Branch at 404-562-6013.

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X

Complete here

Then Each Quarter…


ED will send the employer an Employment Confirmation Report to obtain any information needed regarding any changes to the employment status of the debtor.

The Report lists the debtor/employee's account balance.

Keep in mind that the balance shown on the Report reflects interest that has accrued since the Order was issued. In addition,

ED has used part of the amounts withheld and paid to ED to defray collection costs ED incurs in collecting the debt.

Questions or account balance call (404) 562 -6013.

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