There you are, fearing the worst, afraid to check your mailbox, knowing that it is coming. You are already having financial problems, living paycheck to paycheck, struggling to pay the bills, but you know your situation is about to become a lot worse. Then the day finally comes, and you open the letter that contains the phrase you have been dreading: “garnishment of wages.”
Anyone in this position will likely have many questions: Can they really take my paycheck? How much can they take? Will I lose my job when my employer finds out? Is there anything I can do about it? The answers below may help you understand your rights and what to expect if you find yourself facing a wage attachment.
What is a wage garnishment?
Wage garnishments typically result from unsecured debt (such as credit cards) that has gone unpaid and ignored, or from delinquent tax situations or back-owed child support. A creditor or debt collection agency can file a lawsuit as a last ditch effort to recover an unpaid debt. If the court rules in favor of the creditor, a judgment may be issued that requires an employer to garnish (or “attach”) the debtor’s wages, sending a portion of each paycheck to the creditor.
How much can they take?
The amount of earnings that can be garnished in a work week or pay period is restricted by Title III of the Consumer Credit Protection Act (CCPA). If a pay period covers more than one week, weekly pay calculations must be used to determine the amount garnished. The amount is typically the lesser of:
1.) 25% of an employee’s “disposable earnings” (money left over after regular taxes are withheld), or
2.) the amount that disposable earnings are greater than 30 times the federal hourly minimum wage
If an employee’s disposable earnings are $217.50 ($7.25/hour x 30 hours) per week or less, there can be no garnishment. If disposable earnings exceed $217.50 but are less than $290.00 ($7.25/hour x 40 hours), any amount over $217.50 is subject to garnishment. A maximum of 25% can be garnished if disposable income is $290.00 or higher. (Example provided by US DOL website.)
Wages may not be garnished by more than one creditor at a time unless the primary garnishment does not take the full 25% allowed by law. (These garnishment restrictions do not apply to certain bankruptcy court orders or debts due for federal or state taxes.)
Child or spousal support orders are always given priority over any other wage garnishment. Federal law for child support and alimony allows up to 50% of disposable income to be garnished if an employee is supporting another spouse or child, or 60% if not supporting another spouse or child. An additional 5% can be garnished for support payments that are 12 or more weeks in arrears.
Can I lose my job over this?
Employees are often embarrassed when faced with garnishment, because it means that their employer will now be made aware of their financial situation. The CCPA does protect an employee from being fired because of a single wage garnishment; however, in some states, that protection goes away if more than one garnishment occurs within a 12-month period.
What can I do about it?
If you are facing a debt that you are struggling to pay, the best plan of action is to act early and reach out for help. Speak to your creditors, work out a payment arrangement and stick to a repayment plan. A counseling agency may also be able to help you negotiate lower payment arrangements with a creditor. State law requires creditors to provide adequate notice of any pending legal action, but once a judgment has been issued and the payment arrangement is set by the court, your options will be very limited.
If you have already received notice that your employer has received an order to garnish your wages, you may be upset or angry. But it is important for you to understand that your employer is obligated to comply and garnish your wages according to the legal order. If you have already made other arrangements for repayment of the debt, contact your creditor directly or appeal to the court. If the amount being garnished is causing undue hardship in paying other bills or properly providing basic needs for your family, you can hire an attorney and set up an appeal to the judge to reconsider the amount.
Remember, it is always better to tackle the issue early on and work out a way to satisfy your creditors before a wage garnishment is issued as a last resort.
This article is intended as general information and should not be used as legal advice. Please visit the Department of Labor’s Wage and Hour Division page or call 866-4USWAGE for more information.
The phrase catches your attention doesn’t it? After all, who doesn’t want free money? Well many employers actually do offer free money—through a retirement plan that matches employee contributions dollar for dollar up to a certain percentage. Simply enroll in your company 401(k) plan and contribute 3% to 5% of your pay, and you could get what amounts to an instant 3% to 5% raise!
Yet many employees are leaving this free money on the table. According to a survey by Hewitt Associates, 22% of 401(k) participants do not contribute enough to get the maximum company match.
Haven’t started yet? Servant HR administers many different retirement plans for our clients. Look through your employee handbook or talk to your benefits administrator to see what plan your company offers. Find out when you can participate in your employer’s plan, and follow these two simple steps.
1) Join as soon as you are eligible.
Ask for a copy of the plan booklet (called the Summary Plan Description, or SPD) to learn your plan’s rules and requirements. Retirement plan rules vary. Some plans require that employees be at least 21 years of age and have a year of service with the company before they can participate. Even part time employees can sometimes be eligible if they work a certain number of hours per year.
2) Contribute as much as you are able.
If you think you can’t afford to have much taken out of your paycheck, consider starting with a small percentage and increasing it by just 1% or 2% each year. Or, you could plan to increase your salary deferral any time your salary increases. Your contributions will be deducted from your salary pre-tax, and your investment will continue to grow, tax-deferred, until you take it out. To make changes to your contributions, request the proper form from your plan administrator. You might also have online access which allows you to make deferral changes through your plan’s website (though some plans only allow deferral percentages to be changed at certain points throughout the year).
Don’t worry. Any money that is deducted from your paycheck for your 401(k) plan, and any earnings on that money, is 100% “vested”—meaning that it will always be 100% yours. (There are some restrictions as to when/how you can take that money back out of the plan.) You do not necessarily have an immediate right to contributions made by your employer, however. Ownership of those funds is earned by providing years of service to your employer, according to a “vesting schedule.” These schedules can vary, so you should review your SPD for the specifics of your plan.
Your employer’s retirement savings plan is a key component of your future financial security. It is important for you to understand how your plan works and what benefits you will receive. Servant HR has helped many employees to understand and receive these benefits. And although you may not be able to contribute the maximum allowed by the IRS each year ($17,000 in 2012—$22,500 if you are over 50), you should try to contribute at least enough to gain the benefit of any matching funds your employer offers. Remember, it is FREE MONEY!
Learn more about the benefits of retirement savings at http://www.dol.gov/ebsa/pdf/savingsfitness.pdf
By Loren Elms, CPP, Payroll Administrator
Have you ever wondered why we pay federal income tax? It might surprise you to learn that the U.S. government once relied mainly on customs taxes as its primary source of income. It was actually the enormous cost of the Civil War (1861-1865) that led to the establishment of the first federal income tax.
Several years later, in 1942, a “pay-as-you-go” income tax system was developed to ensure that everyone paid their appropriate taxes. This system is still in place today, as employers continue to be responsible for withholding a percentage of your paycheck for federal taxes. The amount withheld is based on several factors that you report using Form W-4:
• Your marital status – single or married (If you´re married, you can opt to withhold at the higher single rate.)
• The number of withholding allowances you claim. (Allowances determine how much money will be “ignored” when calculating your tax withholding.)
• Any additional fixed dollar amount you would like withheld from each paycheck.
The more allowances entered on your W-4 form, the less income tax the government withholds from your pay. This increases your take-home pay. However, if you have too little taken out, you’ll owe money to the government when you file your annual tax return. If you have too much withheld, you’ll get a refund. Although getting a large refund may seem like a good thing, it basically means you’ve given the government what amounts to an interest-free loan throughout the year.
You may want to review your withholding amount if any of the following is true:
• You had a big refund last year
• You owed more money last year than you could comfortably pay
• You had a life or financial situation change that affects the number of allowances you can claim or the amount of tax you will eventually owe (e.g., marriage, birth of a child, purchase of a home). You have 10 days after the event to file a new Form W-4 with your employer.
Most tax experts agree that the best course of action is to adjust your withholding so that your tax payments will equal your actual tax liability for the year. Worksheets are included with Form W-4 to help you figure out what changes you should make to your withholding amount. You may also find related IRS publications useful: Publication 505 (“Tax Withholding and Estimated Tax”) and Publication 919 (“How Do I Adjust My Tax Withholding?”). These publications, as well as an interactive withholding allowance calculator, are available at www.irs.gov.
If you file a new W-4 with your employer and end up with a bit more cash each paycheck, don’t automatically spend it. Consider opening an account where that extra money will earn you, and not the federal government, interest.