A earnings deduction Order legally obliges your employer to pay a portion of your wages to a creditor as a garnish . A creditor must seek judgment against you in court in order to obtain a withholding order.
Anyone can be subject to an income withholding order depending on their circumstances. Learn when a creditor can garnish your income and how federal and state laws limit how much money can be deducted from your paycheck.
Definition and Example of an Income Withholding Order
An income withholding is a court order that forces your employer to deduct a certain amount of money from your paycheck to pay a creditor. It is used to track debts such as defaulted student loans , unpaid credit card debt, overdue bills, and more. Most creditors must win such a court decision before your wages can be deducted to settle a debt.
Both federal and state laws limit the amount that can be withheld from each paycheck. Withholding limits depend on your income, where you live, and the type of debt. A wage garnishment can have a negative impact on your creditworthiness. The seizure itself must not be reported to a Schufa. However, the account that collects the payment this way can show up on your credit report , along with an indication that it will be repaid via garnishment. This may limit your ability to obtain credit or open a bank account.
- other name : garnishment of wages
For example, if you default on a credit card debt, the loan processor could sue you in civil court. If they win, the creditor can apply for a withholding order to garnish wages from your paycheck to meet your court-ordered financial obligations to them. Your employer must deduct part of your disposable income until the debt is repaid.
Most wage garnishments are made by court order. Others include levies on unpaid state or federal taxes, and federal liens on non-taxable debts you owe the federal government.
This is how a withholding order works
If a creditor cannot collect a debt from you, they can sue you for non-payment to try to collect the debt owed. If the creditor prevails and the court upholds the debt, the creditor can issue a withholding order to your employer. The order contains instructions and details, e.g. B. how much to withhold and where to send the payment.
Income withholding is mandatory. If your employer fails to comply, they could be held personally liable or held in contempt in court.
The court process may vary slightly depending on the state in which you live. However, if a creditor sues you, you will be “served on,” or notified, by the court. You have a limited window of opportunity to object to the attachment or to submit an exemption form. You must respond to the lawsuit in some way. Refusal to accept service or service of notice will not nullify the cause of action. If you do not appear in court, the lawsuit will likely be against you. Once a judgment and subsequent withholding order has been issued against you, it is very difficult to reverse it.
Creditors such as the IRS or the federal government do not have to seek a withholding order for debts such as unpaid income taxes or other federal debts. Late payments for things like child support also don’t require the government to sue you for an earnings withholding order. If your wages are garnished for multiple reasons, your employer must withhold the garnished child support payments from your paycheck before any other debt, except for a federal tax payment if that payment existed prior to the child support order.
In most cases, government support revenues such as Social Security, disability, and pension benefits cannot be garnished to pay off consumer debt. They can be withheld to settle debts such as back taxes, student loans, child support, alimony, or refunds. To prove that your income is tax-exempt, you will likely need to file documentation with your state. Your rights as a consumer, and these exceptions, may vary by state. You may need to speak to a legal advisor to understand all of your options.
Federal and state laws regulate withholding limits on an employee ‘s disposable income . Title III of the Consumer Credit Protection Act (CCPA), which establishes the federal wage garnishment law, limits the amount of earnings that may be withheld by an employee, regardless of the amount of earnings withholding orders that an employee may have against them.
The CCPA also prohibits employers from firing an employee for a single wage garnishment. It does not protect an employee from being fired if they are garnished for two or more debts.
For most types of debt, the maximum allowable amount that can be withheld weekly is the lower of the following:
- 25% of the employee’s weekly disposable income
- The amount by which disposable income exceeds 30 times the state minimum wage ($7.25).
So if an employee makes $7.25 an hour and their weekly earnings are $217.50 or less ($7.25 x $30 = $217.50), their wages cannot be garnished. Anything over $217.50 but under $290 ($7.25 x 40 = $290) can be garnished. Any income over $290 may be withheld as long as it does not exceed the 25% maximum.
If the payment period is bi-weekly or longer, a multiple of the maximum amount will be applied. For example, a biweekly disposable wage of $435 ($217.50 x 2) or less cannot be withheld.
Continuing with the example from the last section, let’s say you lost a civil suit over arrears on credit card debt and an earnings withholding order was sent to your employer to garnish your salary. Your weekly disposable income is $500. Under federal law, no more than 25% or $125 ($500 x $0.25 = $125) of your income may be withheld weekly until the debt is repaid.
For alimony or child support, Title III allows for the withholding of up to 60% of disposable income. If the employee supports another child or a spouse, the maximum rate is 50%. The order may include an additional 5% if payments are more than 12 weeks late.
Some bankruptcy orders or tax liabilities are exempt from state and federal withholding limits. If state law differs from Title III, the law with the lower withholding tax limits applies.
Earnings Deduction Order vs. Income Withholding Order
These two terms both refer to garnishment and are often used interchangeably. However, there are a few key differences.
|Earnings deduction order
|Income Withholding Order (for support)
|For many types of debt, including credit cards and medical bills
|Limited to alimony, child support or bankruptcy cases
|Issued by a court or government agency
|Issued by government agencies
|Federal limits are 25% of weekly disposable income or 30 times the federal minimum wage.
|Withholding limits of 50% to 65% for child support and alimony, possibly more in some bankruptcy cases
|Usually issued when you are behind on payments
|Can also be issued for current payments
The central theses
- A wage withholding is a court order garnishing an employee’s wages to pay a creditor.
- Non-state creditors must sue a debtor in court to obtain judgment for a withholding order.
- The Consumer Credit Protection Act limits the amount of individual income that can be attached and protects employees from termination on the basis of a single withholding.
- Each state has specific wage garnishment and time off laws that affect the limits and scope of withholding orders.