When funds are formally withheld from your paycheck and sent to another person, this is known as garnishment, or wage garnishment. It is a legal procedure in which a creditor requests that a third party take money out of his or her paycheck or bank account on their behalf.

The term "garnishee" is often used to refer to the third party involved. This party is typically the debtor's employer. It is illegal for employers to fire an employee in order to avoid making garnishment payments, according to federal law. Garnishments are utilized to collect on debts such as outstanding taxes, fines, child support, and student loan defaults.

How Garnishment Works

In order to garnish a debtor's wages, a creditor normally needs to acquire a court judgment establishing that the debtor owes money and has missed payments. A court order is not necessary if the debt is an Internal Revenue Service (IRS) levy.

For instance, the IRS may use wage garnishment if John Smith owes $10,000 in past-due, unpaid taxes.

When Smith's tax debt is entirely paid, the IRS will instruct Smith's employer to withhold a percentage of his pay for a predetermined period of time. Garnishments can lower a person's credit score because they are typically used as a last resort to recover debts and reveal a debtor's negative repayment history.

Wage Garnishment

The amount of revenue that can be deducted from a person's paycheck is set down under the Consumer Credit Protection Act. The lesser of the following is the amount subject to garnishment:

  1. If the person has weekly disposable income of more than $290, then 25% of that amount.
  2. Any sum larger than 30 times the weekly minimum wage ($7.25 x 30), which equals $217.50.
  3. Wage garnishment is not applied to those with disposable income under $217.50 per week.
  4. Any sum above $217.50 can be garnished for anyone who has a weekly discretionary income of between $217.50 and $290.
  5. Maximum 25% of weekly disposable income over $290 may be withheld.

Gross income less legally mandated deductions, such as social security and federal, state, and municipal taxes, is referred to as disposable income.

Special Considerations

The Consumer Credit Protection Act's garnishment restrictions do not apply to delinquent tax debt, child support, bankruptcy decrees, student loans, or voluntary salary distributions. Federal organisations and lenders of federal student loans have the right to deduct up to 15% of a person's salary.

When an individual does not have any other dependents to support, up to 60% of their salary may be withheld for child support payments. The lower garnishment limit applies in cases where the federal and state garnishment limits differ. If the wage garnishment is causing financial hardship, the individual may be eligible to file a claim to reduce the garnishment amount.

Key Takeaways

  • A garnishment is a court order that instructs a third party to take assets, typically money from a bank account or salary from employment, to pay off an overdue obligation.
  • Wages can be garnished by the IRS without a court order.
  • Except for unpaid taxes, past-due child support, bankruptcy orders, defaulted student loans, and voluntarily made pay assignments, the Consumer Credit Protection Act places restrictions on what can be withheld from wages.
  • If the debtor is struggling financially, help may be available.
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